Question

Jark Corporation has invested in a machine that cost $66,000, that has a useful life of twelve 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 five 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.) Garrison 16e Rechecks 2017-11-11 Multiple Choice 8.1% 9.2% 28.3% 11.7%

Answer 1

Solution:
	Answer is 4th option 11.7%
Working Notes:
	Simple rate of return = Annual operating income /Initial Investment
	Initial investment	$66,000
	Annual cash inflow = Initial investment/payback period
		=$66,000/5
		=$13,200
	Annual depreciation = (cost -salvage value)/life
		=(66,000-0)/12
		=$5,500
	Annual operating income = Annual cash inflow - Annual depreciation
		=$13,200 - $5,500
		=$7,700
	Simple rate of return = Annual operating income /Initial Investment
		=$7,700/$66,000
		=0.116666
		=11.66666%
		=11.7%
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