Question
(Ignore income taxes in this problem.) Mercer Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine
(Ignore income taxes in this problem.) Mercer Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $340,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $50,000 per year to operate and maintain, but would save $95,000 per year in labor and other costs. The old machine can be sold now for scrap for $30,000. The simple rate of return on the new machine is closest to: (Assume the company uses straight-line depreciation.)
a. 27.94%
b. 3.55%
c. 3.24%
d. 7.10%
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