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Olsen Inc Purchased a $600,000 Machine to Manufacture a Specialty Tap

question 127

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Olsen Inc. purchased a $600,000 machine to manufacture a specialty tap for electrical equipment. The tap is in high demand and Olsen can sell all that it could manufacture for the next 10 years. To encourage capital investments, the government exempts taxes on profits from new investments in this type of machinery. This legislation most likely will remain in effect in the foreseeable future. The equipment is expected to have 10 years of useful life and no salvage value at the end of this 10-year period. The firm uses straight-line depreciation. The net cash inflow is expected to be $144,000 each year. Olsen uses a discount rate of 10% in evaluating its capital investments.

The estimated accounting (book) rate of return (to two decimal places) based on average investment for this proposed investment is:

Definitions:

Detachment

The state or condition of being separate or disconnected from something, often used in a psychological or emotional context.

Flexural Psoriasis

A form of psoriasis characterized by red, shiny areas in skin folds, such as underarms, behind knees, or between buttocks.

Complement

In economics, a good or service that is used together with another good or service, increasing the demand for both.

Quantity Demanded

The amount of a good or service consumers are willing to buy at a specific price, holding all other factors constant.