Blaine Corporation is considering replacing a technologically obsolete machine w

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 $130,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $16,000 per year to operate and maintain, but would save $46,000 per year in labor and other costs. The old machine can be sold now for scrap for $13,000. The simple rate of return on the new machine is closest to: (Ignore income taxes in this problem.)

Explanation / Answer

Solution Cost Incurred Depriciation 13000/10=13000 Add- Maintainance 16000 29000 Less- Saving Cost 46000 Return Due to Machine -17000 Rate of return 17000/13000*100 13.07692308 13.08%

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