The management at Dime Corporation is investigating purchasing equipment that would increase sales revenues by $527,000 per year and cash operating expenses by $339,800 per year. The equipment would cost $425,000 and have a 10 year life with no salvage value. Dime Corporation uses straight-line depreciation for all fixed assets. The simple rate of return on the investment is closest to (ignore income taxes) : A. 44.05% B. 54.05% C. 27.46% D. 34.05%

Question

Business

Ishaan

9 February, 06:22

The management at Dime Corporation is investigating purchasing equipment that would increase sales revenues by $527,000 per year and cash operating expenses by $339,800 per year. The equipment would cost $425,000 and have a 10 year life with no salvage value. Dime Corporation uses straight-line depreciation for all fixed assets. The simple rate of return on the investment is closest to (ignore income taxes) : A. 44.05% B. 54.05% C. 27.46% D. 34.05%

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Answers (1)

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Kianna Grant · Answer 1

option (D) : 34.05%

Explanation:

As per the data given in the question,

Computation of Simple rate of return:

Investment = $425,000

Depreciation = (Initial cost - salvage value) : useful life

= ($425,000 - 0) : 10

= $42,500

Net profit = Sales revenue - cash operating expense - Depreciation

= $527,000-$339,800-$42,500

= $144,700

Simple rate of return = Net Profit : Investment

= $144,700 : $425,000

= 34.05%

Hence, option (D) is correct answer