Question

The management of Nixon Corporation is investigating purchasing equipment that would cost $554,000 and have a...

The management of Nixon Corporation is investigating purchasing equipment that would cost $554,000 and have a 7 year life with no salvage value. The equipment would allow an expansion of capacity that would increase sales revenues by $382,000 per year and cash operating expenses by $220,000 per year. (Ignore income taxes.)

Required:

Determine the simple rate of return on the investment. (Round your answer to 1 decimal place.)

Homework Answers

Answer #1

--Correct Answer = 15.0% = Simple rate of return

A Annual Net Cash Flows $162,000
B Investment $554,000
C Salvage Value $0
D = B - C Depreciable cost $554,000
E Life                                                               7
F = D/E Annual Depreciation $79,143
G = A - F Incremental net cash flows $82,857
H = (G/B) x 100 Simple rate of return 14.96% or 15.0% Answer
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