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What the average annual return on original investment is

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The Joshua Company contemplates the replacement of certain machinery. The annual cost of operating the machinery is P138,600, excluding depreciation, while the estimate for the new machinery is P91,800. Cost of the new equipment is P160,000, net of the trade-in allowance, with a useful life estimate of 8 years and no salvage value. Assume an income tax rate of 50% and 8% cost of capital, and straight line depreciation of P20,000 per year. The book value of the old machine is zero.

Problem 1: The average annual return on original investment is

A. 20.88%
B. 16.75%
C. 29.25%
D. 8.375%

Reference no: EM133006925

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