17.Pid has invested in a machine that cost $70,000, that has a useful life of seven years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of four years. Given these data, the simple rate of return on the machine is closest to:

Question

17.Pid has invested in a machine that cost $70,000, that has a useful life of seven years, and that has no salvage value at the end of its useful life. The machine is being depreciated by the straight-line method, based on its useful life. It will have a payback period of four years. Given these data, the simple rate of return on the machine is closest to:

A)7.1%.
B)8.2%.
C)10.7%.
D)39.3%.

Answer 1

To calculate the simple rate of return on the machine, we need to find the average annual cash inflows and divide it by the initial investment.

First, let's find the average annual cash inflows. The payback period is four years, so we can divide the initial investment by the payback period to get the average annual cash inflows.

Average Annual Cash Inflows = Initial Investment / Payback Period

Average Annual Cash Inflows = $70,000 / 4 years = $17,500

Now, let's calculate the simple rate of return.

Simple Rate of Return = Average Annual Cash Inflows / Initial Investment * 100%

Simple Rate of Return = $17,500 / $70,000 * 100%
Simple Rate of Return = 0.25 * 100%
Simple Rate of Return = 25%

Therefore, the simple rate of return on the machine is 25%. None of the given options match this percentage, so none of the options A), B), C), or D) are correct.