Smith Fabrication has estimated that the purchase of a milling machine costing $160 000 will reduce the firm’s fabrication expenses by $10 000 per month during a two-year period. If the milling machine has zero salvage value in two years, what is the firm’s expected annual rate of return on investment? (Rate of return is the equivalent interest rate that must be earned on the investment to produce the same income as the proposed project. What would be the rate of return if the salvage value for 50 percent of the purchase price? If approved by your instructor, write a computer program or use a spreadsheet to solve the problem. Repeat for expense reductions of $13 500, $14 000, $14 500, $15 000, and $15 500 per month.

Question

What will be an ideal response?

Answer 1