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

Multiple Choice

Mercer Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $250,000 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 $55,000 per year in labor and other costs. The old machine can be sold now for scrap for $10,000. The simple rate of return on the new machine is closest to:

A) 17.9%
B) 7.5%
C) 22.0%
D) 7.2%