An expansion at Fey, Inc., would increase sales revenues by $150,000 per year and cash operating expenses by $47,000 per year. The initial investment would be for equipment that would cost $328,000 and have an 8 year life with no salvage value. The annual depreciation on the equipment would be $41,000. The simple rate of return on the investment is closest to (Ignore income taxes.):

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andromache andromache · Answer 1 · 2019-10-23T09:59:08+02:00

Answer:

The simple rate of return on the investment is closest to 18.90%

Explanation:

The formula to compute the rate of return on the investment is shown below:

= (Net income after deducting expenses) ÷ (investment value)

where,

Net income after deducting expenses = Sales revenue - cash operating expenses - annual depreciation

= $150,000 - $47,000 - $41,000

= $62,000

And, the initial investment is $328,000

Now put these values to the above formula

So, the rate would equal to

= $62,000 ÷ $328,000

= 18.90%