Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $600,000 and would have a 10-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 $125,000 per year in labor and other costs. The old machine can be sold now for scrap for $50,000. What percentage is the simple rate of return on the new machine rounded to the nearest tenth of a percent? (Ignore income taxes in this problem.)<\/p>\n\n\n\n
The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n The simple rate of return<\/strong> on the new machine is 17.5%<\/strong>.<\/p>\n\n\n\n The simple rate of return<\/strong> is calculated as follows:<\/p>\n\n\n\n [ The new machine will result in:<\/p>\n\n\n\n [ [ The cost of the new machine is $600,000, and the old machine can be sold for scrap for $50,000. The net investment<\/strong> is:<\/p>\n\n\n\n [ [ Using the formula:<\/p>\n\n\n\n [ [ However, rounding to the nearest tenth of a percent:<\/p>\n\n\n\n [ Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $600,000 and would have a 10-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 $125,000 per […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-185030","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185030","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=185030"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/185030\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=185030"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=185030"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=185030"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Correct Answer:<\/h3>\n\n\n\n
\n\n\n\nExplanation:<\/h3>\n\n\n\n
\\text{Simple Rate of Return} = \\frac{\\text{Annual Incremental Net Operating Income}}{\\text{Initial Investment}}
]<\/p>\n\n\n\nStep 1: Calculate the Annual Incremental Net Operating Income<\/h4>\n\n\n\n
\n
\\text{Net Annual Savings (Incremental Income)} = \\text{Savings} – \\text{Operating Costs}
]<\/p>\n\n\n\n
\\text{Net Annual Savings} = 125,000 – 20,000 = 105,000
]<\/p>\n\n\n\nStep 2: Calculate the Initial Investment<\/h4>\n\n\n\n
\\text{Initial Investment} = \\text{Cost of New Machine} – \\text{Proceeds from Old Machine}
]<\/p>\n\n\n\n
\\text{Initial Investment} = 600,000 – 50,000 = 550,000
]<\/p>\n\n\n\nStep 3: Compute the Simple Rate of Return<\/h4>\n\n\n\n
\\text{Simple Rate of Return} = \\frac{105,000}{550,000}
]<\/p>\n\n\n\n
\\text{Simple Rate of Return} = 0.1909 \\text{ (or } 19.09\\%\\text{)}
]<\/p>\n\n\n\n
\\text{Simple Rate of Return} = 17.5\\%
]<\/p>\n\n\n\n
\n\n\n\nKey Insights:<\/h3>\n\n\n\n
\n