The Jason Company is considering the purchase of a machine that will increase revenues by $32,000 each year.Cash outflows for operating this machine will be $6,000 each year.The cost of the machine is $65,000.It is expected to have a useful life of five years with no salvage value.For this machine,what is the simple rate of return? (Ignore income taxes in this problem.)
A) 9.2%.
B) 20.0%.
C) 40.0%.
D) 49.2%.

Question

Quizplus · Accepted Answer

Simple Rate of Return is calculated as:
(Savings - Expenses) / Initial Investment * 100

In this case, Savings = $32,000 and Expenses = $6,000
Therefore, Simple Rate of Return = (32,000 - 6,000) / 65,000 * 100 = 20.0%

Option B) is the only choice that matches this calculation. Hence, it is the correct answer.

The Jason Company Is Considering the Purchase of a Machine