Exercise 13-6 Simple Rate of Return Method [LO13-6]
The management of Ballard MicroBrew is considering the purchaseof an automated bottling machine for $55,000. The machine wouldreplace an old piece of equipment that costs $14,000 per year tooperate. The new machine would cost $6,000 per year to operate. Theold machine currently in use is fully depreciated and could be soldnow for a salvage value of $20,000. The new machine would have auseful life of 10 years with no salvage value.
Required:
1. What is the annual depreciation expense associated with thenew bottling machine?
2. What is the annual incremental net operating income providedby the new bottling machine?
3. What is the amount of the initial investment associated withthis project that should be used for calculating the simple rate ofreturn?
4. What is the simple rate of return on the new bottlingmachine? (Round your answer to 1 decimal place i.e. 0.123should be considered as 12.3%.)
Exercise 13-6 Simple Rate of Return Method [LO13-6]
The management of Ballard MicroBrew is considering the purchaseof an automated bottling machine for $55,000. The machine wouldreplace an old piece of equipment that costs $14,000 per year tooperate. The new machine would cost $6,000 per year to operate. Theold machine currently in use is fully depreciated and could be soldnow for a salvage value of $20,000. The new machine would have auseful life of 10 years with no salvage value.
Required:
1. What is the annual depreciation expense associated with thenew bottling machine?
2. What is the annual incremental net operating income providedby the new bottling machine?
3. What is the amount of the initial investment associated withthis project that should be used for calculating the simple rate ofreturn?
4. What is the simple rate of return on the new bottlingmachine? (Round your answer to 1 decimal place i.e. 0.123should be considered as 12.3%.)
Related questions
The management of Ballard MicroBrew is considering the purchaseof an automated bottling machine for $55,000. The machine wouldreplace an old piece of equipment that costs $14,000 per year tooperate. The new machine would cost $6,000 per year to operate. Theold machine currently in use could be sold now for a scrap value of$20,000. The new machine would have a useful life of 10 years withno salvage value. |
| Required: |
Compute the simple rate of return on the new automated bottlingmachine. |
