Russnak Corporation Is Investigating Automating a Process by Purchasing a New

question 188

Essay

Russnak Corporation is investigating automating a process by purchasing a new machine for $198,000 that would have a 9 year useful life and no salvage value. By automating the process, the company would save $68,000 per year in cash operating costs. The company's current equipment would be sold for scrap now, yielding $18,000. The annual depreciation on the new machine would be $22,000. (Ignore income taxes.)Required:Determine the simple rate of return on the investment to the nearest tenth of a percent.

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Definitions:

Revaluation Model

An accounting method that allows for the upward adjustment in the carrying value of a fixed asset to reflect its current market value.

AASB 6 Scope

Refers to the coverage or applicability boundaries of the AASB (Australian Accounting Standards Board) 6, which deals with the exploration for and evaluation of mineral resources.

Exploration Expenditures

Costs incurred in the search for mineral resources, including the cost of drilling, sampling, and preliminary surveying, before the development stage of mining operations.

Full Cost Method

The full cost method is an accounting practice used in the oil and gas industry to capitalize all costs associated with finding and developing oil and gas reserves, regardless of the outcome of those efforts.