Exercise 12-6 (Static) Simple Rate of Return Method [LO12-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $40,000. The new machin would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4. Simple rate of return $ $ $ 12,000 0 80,000
Exercise 12-6 (Static) Simple Rate of Return Method [LO12-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $40,000. The new machin would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%) 1. Depreciation expense 2. Incremental net operating income 3. Initial investment 4. Simple rate of return $ $ $ 12,000 0 80,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Exercise 12-6 (Static) Simple Rate of Return Method [LO12-6]
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine
would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to
operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $40,000. The new machine
would have a useful life of 10 years with no salvage value.
Required:
1. What is the annual depreciation expense associated with the new bottling machine?
2. What is the annual incremental net operating income provided by the new bottling machine?
3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?
4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be
considered as 12.3%)
1. Depreciation expense
2. Incremental net operating income
3. Initial investment
4. Simple rate of return
$
$
$
12,000
0
80,000
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F56495a45-1a38-4492-8e75-566170796f92%2Fb93501e6-5024-4695-9b5e-2417909bfc1f%2F174kzh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 12-6 (Static) Simple Rate of Return Method [LO12-6]
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine
would replace an old piece of equipment that costs $30,000 per year to operate. The new machine would cost $12,000 per year to
operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $40,000. The new machine
would have a useful life of 10 years with no salvage value.
Required:
1. What is the annual depreciation expense associated with the new bottling machine?
2. What is the annual incremental net operating income provided by the new bottling machine?
3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?
4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be
considered as 12.3%)
1. Depreciation expense
2. Incremental net operating income
3. Initial investment
4. Simple rate of return
$
$
$
12,000
0
80,000
%
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Step 1: Define single rate of return use
VIEWStep 2: 1) The calculation of the Annual depreciation is as follows-
VIEWStep 3: 2) The incremental net operating income is calculated as follows-
VIEWStep 4: The calculation of the initial investment is as follows-
VIEWStep 5: 4) The calculation of the simple rate of return is as follows-
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