The owner of a manufacturing company is considering whether or not to invest in a new sanding machine that costs $1,000. Net expected revenue after installation of the machine is $1,100. What is the expected rate of return?

Answer 1

To calculate the expected rate of return (ERR) on the investment in the sanding machine, you can use the following formula:

\[ \text{Expected Rate of Return (ERR)} = \frac{\text{Net Expected Revenue} - \text{Cost of Investment}}{\text{Cost of Investment}} \times 100 \]

In this case:

• Cost of Investment = $1,000
• Net Expected Revenue = $1,100

Now, plug these values into the formula:

\[ \text{ERR} = \frac{1,100 - 1,000}{1,000} \times 100 \]

\[ \text{ERR} = \frac{100}{1,000} \times 100 \]

\[ \text{ERR} = 0.1 \times 100 = 10% \]

Therefore, the expected rate of return on the investment in the new sanding machine is 10%.