(Ignore income taxes in this problem.) Blaine Corporation is considering replacing a technologically obsolete machine with a new
state-of-the-art numerically controlled machine. The new machine would cost $180,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $12,000 per year to operate and maintain, but would save $48,000 per year in labor and other costs. The old machine can be sold now for scrap for $20,000. What is the simple rate of return on the new machine (round off your answer to the nearest one-hundredth of a percent)? Select one:
1) 10.00%2) 26.67%3) 22.50%4) 11.25%show work please
1) 10.00%2) 26.67%3) 22.50%4) 11.25%show work please
1 answer:
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Answer:
salvage value is $16,368.34
Explanation:
given data
initial cost = $182,730
annualized capital cost = $42,442
service life = 7 year
interest rate = 15%
solution
we get here first present value that is
annual value = rate × .................1
put here value and we get
42,442 = 15% ×
solve it we get
present value = $176,576.5343
so
present value = initial investment + salvage value ..............2
we take here present value and initial investment will be negative
-176,576.5343 = -182,730 + salvage value(p/f,15%,7)
-176,576.5343 +182,730 = salvage value(p/f,15%,7)
6,153.465 = salvage value × 0.3759
salvage value = 16,368.34