(Ignore Income Taxes in This Problem

question 7

Multiple Choice

(Ignore income taxes in this problem.) The management of Kissinger Corporation is investigating automating a process. Old equipment, with a current salvage value of $23,000, would be replaced by a new machine. The new machine would be purchased for $330,000 and would have a 6 year useful life and no salvage value. By automating the process, the company would save $108,000 per year in cash operating costs. The simple rate of return on the investment is closest to:

• A) 17.3%
• B) 16.7%
• C) 16.1%
• D) 32.7%

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Definitions:

Lenders

Individuals, institutions, or entities that provide funds to others with the expectation that the funds will be repaid, typically with interest.

Risk-Free Rate

The return on an investment with no risk of financial loss, often represented by the yield on government securities.

Earning Power

The ability of a business to generate net income consistently over time.

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically including terms for interest payments and the return of principal.