Exam 12: Capital Budgeting Decisions

The simple rate of return focuses on accounting net operating income rather than on cash flows.

(Ignore income taxes in this problem. )Weilbacher Corporation is considering the purchase of a machine that would cost $240,000 and would last for 8 years.At the end of 8 years,the machine would have a salvage value of $50,000.The machine would reduce labor and other costs by $62,000 per year.The company requires a minimum pretax return of 16% on all investment projects. Required: Determine the net present value of the project.Show your work!

The simple rate of return method places its focus on cash flows instead of on accounting net operating income.

(Ignore income taxes in this problem. )Brewer Company is considering purchasing a machine that would cost $537,600 and have a useful life of 9 years.The machine would reduce cash operating costs by $82,708 per year.The machine would have a salvage value of $107,520 at the end of the project. Required: a.Compute the payback period for the machine. b.Compute the simple rate of return for the machine.