e Fine Clothing Factory wants to replace an old machine with a new one. The machine can be sold to a small factory for R10 000. The new machine would rease annual revenue by R150 000 and annual operating expenses by R60 D. The new machine would cost R360 000. The estimated useful life of the chine is 12 years with zero salvage value. Using Average rate of return RR), Should Fine Clothing Factory purchase the machine if management sired rate of return of 15% on all capital investments? Show all the calculations

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
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The Fine Clothing Factory wants to replace an old machine with a new one. The
old machine can be sold to a small factory for R10 000. The new machine would
increase annual revenue by R150 000 and annual operating expenses by R60
000. The new machine would cost R360 000. The estimated useful life of the
machine is 12 years with zero salvage value. Using Average rate of return
(ARR), Should Fine Clothing Factory purchase the machine if management
desired rate of return of 15% on all capital investments? Show all the calculations
and motivate your answer.
Transcribed Image Text:The Fine Clothing Factory wants to replace an old machine with a new one. The old machine can be sold to a small factory for R10 000. The new machine would increase annual revenue by R150 000 and annual operating expenses by R60 000. The new machine would cost R360 000. The estimated useful life of the machine is 12 years with zero salvage value. Using Average rate of return (ARR), Should Fine Clothing Factory purchase the machine if management desired rate of return of 15% on all capital investments? Show all the calculations and motivate your answer.
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