(Ignore Income Taxes in This Problem

Multiple Choice

(Ignore income taxes in this problem.) An expansion at Fidell, Inc., would increase sales revenues by $75,000 per year and cash operating expenses by $38,000 per year. The initial investment would be for equipment that would cost $135,000 and have a 5 year life with no salvage value. The annual depreciation on the equipment would be $27,000. The simple rate of return on the investment is closest to:

A) 20.0%
B) 7.4%
C) 27.4%
D) 13.3%