Blaine Corporation is considering replacing a technologically obsolete machine w
ID: 2536310 • Letter: B
Question
Blaine Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $310,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $52,000 per year to operate and maintain, but would save $93,000 per year in labor and other costs. The old machine can be sold now for scrap for $31,000. The simple rate of return on the new machine is closest to: (Ignore income taxes in this problem.)
Blaine Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $310,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $52,000 per year to operate and maintain, but would save $93,000 per year in labor and other costs. The old machine can be sold now for scrap for $31,000. The simple rate of return on the new machine is closest to: (Ignore income taxes in this problem.)
Explanation / Answer
Net annual income = 93000-52000-(310000/10)= $10000 Net investment cost = 310000-31000= $279000 Simple rate of return = 10000/279000= 3.58%
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