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

question 266

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%

---

Definitions:

Foot-In-The-Door Study

Psychological experiments demonstrating that agreeing to a small request increases the likelihood of agreeing to a larger request later on.

Compliance

The act of conforming to or following the rules, requests, or orders of others, often to gain approval or avoid conflict.

Scarcity

The economic principle that describes the limited availability of resources compared to the theoretically limitless wants and needs of individuals.

Dissonance

A state of mental conflict or inconsistency, often used to describe the tension arising from holding contradictory beliefs or attitudes.