Denny Corporation is considering replacing a technologically osdolete machine wi

Question

Denny Corporation is considering replacing a technologically osdolete machine with a new state of the aret numerically controlled machine. The new machine would cost $600,000 and would have a 10 year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $20,000 per year to operate and maintain, but would save $125,000 per year in labor and other costs. the old mahine cfan be sold now for scrap for $50,000. What percentage is the simple rate of return on th enew machine rounded to the nearest tenth of a percent?(Ignore oncome taxes in this problem)

Please show me how you get the answer as I need to show my work

Explanation / Answer

Total Income gained = 50000 - 600000 + (125000 - 20000) * SPW = 0 =>105000*SPW = 550000 =>SPW = 5.2381 =>((1+x)^10-1)/(1+x)^10x = 5.2381 =>(1+x)^10 - 1 = 5.2381x(1+x)^10 =>x = 0.139 = 13.9% approximately

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