A Company Is Considering Purchasing a Machine That Costs $280,000

question 8

Multiple Choice

A company is considering purchasing a machine that costs $280,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. If the machine is purchased, the annual rate of return expected on this machine is

• A) 22.1%.
• B) 44.3%.
• C) 9.6%.
• D) 19.3%.

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Definitions:

Structural Strength

Refers to the ability of a material or structure to withstand loads that are applied to it without breaking or deforming.

Carotene

A type of pigment found in plants that contributes to the orange, yellow, and red colors of many fruits and vegetables; it is a precursor of vitamin A in the human diet.

Pigment

A substance that imparts color to other materials by absorbing a spectrum of light and reflecting certain wavelengths.

Dermatitis

Inflammation of the skin characterized by redness, itching, and often blistering.