Question

jark corporation has invested in a machine that cost $63,000, that has a useful life of ten years, and that has no salvage value at the end of its useful life. the machine is being depreciated by the straight-line method, based on its useful life. it will have a payback period of seven years. given these data, the simple rate of return on the machine is closest to (ignore income taxes.): (round your answer to 1 decimal place.) multiple choice .7% 1.8% 4.3%

Answer 1

The simple rate of return on the machine is 4.3%, calculated by subtracting the annual depreciation from the annual savings and dividing by the initial investment cost.

Step-by-step explanation:

To determine the simple rate of return on the machine for Jark Corporation, we must first calculate the annual depreciated expense and annual savings. The machine has a cost of $63,000 and a useful life of ten years, meaning the annual depreciation is $6,300 ($63,000 / 10 years). With a payback period of seven years, the annual savings generated by the machine must equal $9,000 (the cost of $63,000 divided by the payback period of seven years). The simple rate of return is then calculated by dividing the annual savings minus the annual depreciation expense by the initial investment and then multiplying by 100 to get a percentage.

SRR (Simple Rate of Return) = [(Annual Savings - Annual Depreciation) / Initial Investment] x 100

SRR = [($9,000 - $6,300) / $63,000] x 100

SRR = 4.3%

Therefore, the closest simple rate of return is 4.3%.

Answer 2

The simple rate of return on the machine is 10%.

Step-by-step explanation:

The simple rate of return on the machine can be calculated by dividing the annual cash inflows by the initial investment cost and then multiplying by 100 to get the percentage.

In this case, the annual cash inflow is the cost savings per year, which is equal to the initial investment cost divided by the useful life of the machine.

So, the simple rate of return is:

($63,000 / 10) / $63,000 * 100

= 6300/63,000 * 100

= 10

Therefore, the closest option to the simple rate of return is 10%.