Messersmith Corporation Is Investigating Automating a Process by Purchasing a Machine

question 108

Multiple Choice

Messersmith Corporation is investigating automating a process by purchasing a machine for $688,000 that would have an 8 year useful life and no salvage value. By automating the process, the company would save $160,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $19,000. The annual depreciation on the new machine would be $86,000. The simple rate of return on the investment is closest to:

• A)23.3%
• B)11.1%
• C)10.8%
• D)12.5%

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Definitions:

LLC

Limited Liability Company, a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Damages

A monetary compensation awarded to a person as restitution for loss or injury caused by the unlawful acts or negligence of another party.

Dissociating Member

An individual who is leaving or has left a partnership or limited liability company (LLC), and hence is severing ties with the entity.

LLC

A Limited Liability Company is a type of business organization that merges the benefit of pass-through taxation seen in partnerships or sole proprietorships with the advantage of limited liability found in corporations.