(Ignore Income Taxes in This Problem

(Ignore income taxes in this problem.) Messersmith Corporation is investigating automating a process by purchasing a machine for $688,000 that would have an 8 year useful life and no salvage value. By automating the process, the company would save $160,000 per year in cash operating costs. The new machine would replace some old equipment that would be sold for scrap now, yielding $19,000. The annual depreciation on the new machine would be $86,000. The simple rate of return on the investment is closest to:

A) 23.3%
B) 11.1%
C) 10.8%
D) 12.5%

Correct Answer:

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