Denny Corporation Is Considering Replacing a Technologically Obsolete Machine with a New

Multiple Choice

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 (Ignore income taxes.) :

A) 8.75%
B) 20.00%
C) 7.78%
D) 22.22%