Fast Food, Inc $\$ 16,000$ And Has an Estimated Life of Ten Years

question 145

Multiple Choice

Fast Food, Inc. has purchased a new donut maker. It cost $\$ 16,000$ and has an estimated life of ten years. The following annual donut sales and expenses are projected:
$\begin{array}{l|r|r|}\hline \text { Sales } & & \$ 22,000 \\\hline \text { Expenses: } & & \\\hline \text { Flour, etc. (required in making donuts) } & \$ 10,000 & \\\hline \text { Salaries } & \$ 6,000 & \\\hline \text { Depreciation } & \$ 1,600 & \$ 17,600 \\\hline \text { Operating Income } & & \$ 4,400 \\\hline\end{array}$
(Ignore income taxes in this problem.)
-The simple rate of return for the new machine is closest to which of the following?

• A) 20.0%.
• B) 27.5%.
• C) 37.5%.
• D) 80.0%.

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