The production department is proposing the purchase of an automatic insertion machine. It has identified 3...
The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and has asked the accountant to analyze them to determine the best average rate of return.
| Machine A | Machine B | Machine C | |
| Estimated average annual income | $44,097.90 | $77,082.90 | $73,762.65 |
| Average investment | $314,985.00 | $256,943.00 | $491,751.00 |
a.Machine A or B
b.Machine B
c.Machine C
d.Machine A
Homework Answers
Answer:
Correct option: B] Machine B
|
Particulars |
Machine A |
Machine B |
Machine C |
|
Estimated average annual income |
$44,097.90 |
$77,082.90 |
$73,762.65 |
|
Average investment |
$314,985.00 |
$256,943.00 |
$491,751.00 |
|
Average rate of return. = Estimated average annual income / Average investment |
14% |
30% |
15% |
Hence machine B have higher Average rate of return, i.e
30%, so machine B should be purchase due to best average rate of
return
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