Rittenberg, L., & Tregarthen, T. (2012). Macroeconomics Principles V. 2.0. Licensed under Creative Commons by-nc-sa 3.0

https://drive.google.com/file/d/1-1bOivgJmCExpb7QcjBq0v6B2DlT1zky/view?usp=drivesdk

Burger World is contemplating installing an automated ordering

system. The ordering system will allow Burger World to

permanently replace five employees for an annual (and

permanent) cost savings of $100,000.

a. If the automated system cost $1,000,000, what is the rate of

return on the investment?

b. If the system cost $2,000,000, what would be its rate of

return?

c. If the government were to introduce an investment tax

credit that allows firms to deduct 10% of its investment from

its tax liability, what would happen to the rate of return if

the system costs $1,000,000?

d. If Burger World has to pay 8% to borrow the funds to

purchase the system, what is the most it should pay for the

system? Assume that there is no investment tax credit.