Asked by Boston Bragg on Jul 11, 2024
Verified
(Ignore income taxes in this problem.) Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine.The new machine would cost $450,000 and would have a ten-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 $100,000 per year in labor and other costs.The old machine can be sold now for scrap for $50,000.The simple rate of return on the new machine is closest to:
A) 8.75%
B) 20.00%
C) 7.78%
D) 22.22%
Numerically Controlled
Pertaining to machines or processes that are operated by precise instructions coded in the form of numbers.
Technologically Obsolete
A state in which a product, service, or method has become outdated due to advances in technology, making it less efficient or desirable compared to newer options.
Simple Rate
Refers to a basic or straightforward percentage that does not involve compounding over time, typically in finance.
- Illuminate the concept of the simple rate of return and its employment in analyzing the effectiveness of investments.
Verified Answer
RA
Rosalba AlarconJul 12, 2024
Final Answer :
A
Explanation : 
Simple rate of return = Annual incremental net operating income ÷ Initial investment
= $35,000 ÷ ($450,000 - $50,000)
= 8.75%
Simple rate of return = Annual incremental net operating income ÷ Initial investment= $35,000 ÷ ($450,000 - $50,000)
= 8.75%
Learning Objectives
- Illuminate the concept of the simple rate of return and its employment in analyzing the effectiveness of investments.