Kramer's Carpet Cleaning which is located in Omaha, Nebraska, plans on acquiring a new carpet cleaning machine which costs $74,000. The new machine would replace an existing older machine that is currently in use. Annual operating costs for the old machine are $19,000. Projected annual operating costs for the new machine are $9,000. The old machine could be sold for $31,000. The new machine would have a useful life of 10 years with no salvage value.

Required:

1. What is the annual depreciation expense associated with the new carpet cleaning machine?

2. What is the annual incremental net operating income provided by the new carpet cleaning machine?

3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?

4. What is the simple rate of return on the new carpet cleaning machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)

1. 2. Depreciation expense Incremental net operating income Initial investment Simple rate of return 3 4. %