JUST NEED ANSWER ASAP. Blaine Corporation is considering replacing a technologic
ID: 2458557 • Letter: J
Question
JUST NEED ANSWER ASAP.
Blaine Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $290,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $48,000 per year to operate and maintain, but would save $89,000 per year in labor and other costs. The old machine can be sold now for scrap for $29,000. The simple rate of return on the new machine is closest to: (Ignore income taxes in this problem.)
a. 4.14%
b. 30.69%
c. 9.20%
d. 4.60%
Explanation / Answer
Simple rate of return = annual incremental income /iniital investment
initial investment = $290,000 - $29,000 scarp value = $261,000
Annual inctemental income = saving in cost $89,000 - less cost of operating $48,000 - less dep $29,000= $12,000
simple rate of return = 12,000/261,000 = 4.60%
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