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REWRITTEN
EXERCISE 4–4 Unadjusted Rate of Return Method
Um Good, Inc., a candy maker,
is thinking of purchasing a new machine. A marketing firm has estimated that
the new machine could increase revenues by $30,000 a year for the next ten years.
The expenses directly relating to the machine (other than depreciation) are
$12,000 per year. The initial purchase cost of the machine is $80,000. The salvage
value on the machine is estimated to be $20,000. What is the unadjusted rate
of return?