Question

# Jark Corporation has invested in a machine that cost \$66,000, that has a useful life of...

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%

 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% Please feel free to ask if anything about above solution in comment section of the question.

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