Answer to Question #313180 in Civil and Environmental Engineering for Glady

Question

Brigham Tea, Inc., is a processor of low acid tea. The company is contemplating purchasing equipment for an additional processing line. The additional processing line would increase revenues by $90,000 per year. Incremental cash operating expense would be $40,000 per year. The equipment would cost $180,000 and have a nine-year life. No salvage value is projected.

Answer 1

Simple rate of return = ($90,000 Incremental revenues) − ($40,000 Cash operating expenses + $20,000 Depreciation) / $180,000 Initial investment

= $\frac{30,000}{180,000}$

= 16.7%