(Ignore Income Taxes in This Problem

question 153

Multiple Choice

(Ignore income taxes in this problem.) The management of Duker Corporation is investigating purchasing equipment that would increase sales revenues by $130,000 per year and cash operating expenses by $39,000 per year. The equipment would cost $328,000 and have an 8 year life with no salvage value. The simple rate of return on the investment is closest to:

• A)12.5%
• B)27.7%
• C)38.5%
• D)15.2%

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Definitions:

Cost-Volume-Profit Data

Information that shows how changes in cost and volume affect a company's profit, used for making short-term economic decisions.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Sales Price

The amount of money for which a product is sold to the customer, excluding any discounts or rebates.

Variable Cost

A cost that varies with the level of output or sales, such as raw materials or direct labor costs.