(Ignore Income Taxes in This Problem

question 41

Essay

(Ignore income taxes in this problem.) The management of Rexwinkle Corporation is investigating automating a process by replacing old equipment by a new machine. The old equipment would be sold for scrap now for $29,000. The new machine would cost $469,000, would have a 7 year useful life, and would have no salvage value. By automating the process, the company would save $177,000 per year in cash operating costs.
Required:
Determine the simple rate of return on the investment to the nearest tenth of a percent. Show your work!

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Definitions:

Disadvantages

The negative aspects or conditions that may cause setbacks or challenges in a given situation.

Scorched Earth Policy

A defensive strategy used by companies to avoid hostile takeovers by making themselves less attractive to the acquirer.

Crown Jewels

Historically significant pieces of regalia, including crowns, sceptres, orbs, and other ornaments, used at the coronation of a monarch and representing royal authority.

Takeover Defense

Strategies employed by a target company to prevent or discourage unwanted acquisition attempts.