A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow: Purchase cost of the equipment$560,500Annual cost savings that will beprovided by the equipment$95,000Life of the equipment10 years Required:1a. Compute the payback period for the equipment.1b. If the company requires a payback period of four years or less, would the equipment be purchased?2a. Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life.2b. Would the equipment be purchased if the company’s required rate of return is 16%?

1. Payback period is the time which will be taken by a project to recover the purchase price.…

Answered: 1a. Compute the payback period for the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow:


Purchase cost of the equipment	$	560,500
Annual cost savings that will be provided by the equipment	$	95,000
Life of the equipment	10 years

Required:

1a. Compute the payback period for the equipment.

1b. If the company requires a payback period of four years or less, would the equipment be purchased?

2a. Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life.

2b. Would the equipment be purchased if the company’s required rate of return is 16%?

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