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    Rate of Return on Equipment Investment

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    A new automatic controller can be installed for $30,000 and will have a $3,000 salvage value after 10 years. This controller is expected to decrease operating costs by $4,000 per year.

    A. What rate of return is expected if the controller is used for 10 years.
    B. For what life will the controller give a return of 15%.

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    Solution Preview

    Please see attached file.

    Initial Investment = 30,000
    Scrap Value = 3,000

    Thus, Average Investment (AI) = (30,000+3,000)/2 = 16,500
    Annual Depreciation = (30,000-3,000)/10 = ...

    Solution Summary

    The solution finds the rate of return on a tool investment.