ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Capital Investment Decision:

Accounting Rate-of-Return Method Boink Corporation manufactures metal hard hats for on-site construction workers. Recently, management has tried to raise productivity to meet the growing demand from the real estate industry. The company is now thinking about buying a new stamping machine. Management has decided that only capital investments that yield at least a 14 percent return will be accepted. The new machine would cost $325,000; revenue would increase by $98,400 per year; the residual value of the new machine would be $32,500; and operating cost increases (including depreciation) would be $74,600.

Using the accounting rate-of-return method, decide whether the company should invest in the machine. Show all computations to support your decision.

 

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