(Ignore Income Taxes in This Problem

question 82

Essay

(Ignore income taxes in this problem.) The management of Kleppe Corporation is investigating automating a process by replacing old equipment by a new machine. The old equipment would be sold for scrap now for $19,000. The new machine would cost $180,000, would have a 9 year useful life, and would have no salvage value. By automating the process, the company would save $30,000 per year in cash operating costs.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

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Definitions:

Nominal Rate

The officially declared or promoted rate of interest for a loan or investment, excluding the effects of compounding or any associated fees.

Loan

A borrowed sum of money that is expected to be paid back with interest.

Investment

Distributing capital or resources with the goal of achieving financial gain or income.

Annually Compounded

Pertaining to the calculation and addition of interest to the principal sum once a year, affecting overall growth.