(Ignore Income Taxes in This Problem

question 62

Multiple Choice

(Ignore income taxes in this problem. ) Tu Corporation is investigating automating a process by purchasing a machine for $423,000 that would have a 9 year useful life and no salvage value.By automating the process,the company would save $112,000 per year in cash operating costs.The new machine would replace some old equipment that would be sold for scrap now,yielding $27,000.The annual depreciation on the new machine would be $47,000.The simple rate of return on the investment is closest to:

• A)15.4%
• B)16.4%
• C)26.5%
• D)11.1%

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Definitions:

Average Annual Return

The compound annual growth rate of an investment over a specified period of time.

Fama and French

A multifactored model developed by Eugene Fama and Kenneth French to describe stock returns, incorporating market, size, and value factors among others.

Efficient-Market Hypothesis

A theory that suggests that financial markets fully absorb and reflect all available information, making it impossible to consistently achieve higher returns than the market average.

Small Investor

An individual investor who makes relatively small amounts of investments in the stock market or other financial markets, often with limited resources.