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 Annual cost savings that will be provided by the equipment Life of the equipment $448,000 $ 80,000 10 years Required: la. 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 13%?
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 Annual cost savings that will be provided by the equipment Life of the equipment $448,000 $ 80,000 10 years Required: la. 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 13%?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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
Annual cost savings that will be
provided by the equipment
Life of the equipment
$448,000
$ 80,000
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.
ces
2b. Would the equipment be purchased if the company's required rate of return is 13%?
Complete this question by entering your answers in the tabs below.
Reg 1A
Reg 1B
Reg 2A
Reg 2B
Compute the payback period for the equipment. (Round your answer to 1 decimal place.)
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