The Management of Schenk Corporation Is Investigating Automating a Process

question 117

Essay

The management of Schenk Corporation is investigating automating a process by replacing old equipment by a new machine. The old equipment would be sold for scrap now for $13,000. The new machine would cost $648,000, would have a 9 year useful life, and would have no salvage value. By automating the process, the company would save $186,000 per year in cash operating costs. (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:

Sale Of Product

Sale of product refers to the transaction in which a business sells its physical goods to a customer in exchange for payment.

Tax Savings

The amount of money that a person or company reduces from their tax obligation as a result of deductions, credits, or allowances.

Depreciate

The decrease in the value of an asset over time, often due to wear and tear, obsolescence, or market conditions, typically applied to fixed assets.

Finance Manager

A professional responsible for managing a company's financial activities, including budgeting, forecasting, and investment analysis.