A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could useto reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow (currency is inthousands of yen, denoted by ¥):Purchase cost of the equipment ............. ¥432,000Annual cost savings that will beprovided by the equipment .................. ¥90,000Life of the equipment .............................. 12 yearsRequired:(Ignore income taxes.)1. Compute the payback period for the equipment. If the company requires a payback period of fouryears or less, would the equipment be purchased?2. Compute the simple rate of return on the equipment. Use straight-line depreciation based on theequipment’s useful life. Would the equipment be purchased if the company’s required rate of returnis 14%?
A piece of laborsaving 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 (currency is in
thousands of yen, denoted by ¥):
Purchase cost of the equipment ............. ¥432,000
Annual cost savings that will be
provided by the equipment .................. ¥90,000
Life of the equipment .............................. 12 years
Required:
(Ignore income taxes.)
1. Compute the payback period for the equipment. If the company requires a payback period of four
years or less, would the equipment be purchased?
2. Compute the simple
equipment’s useful life. Would the equipment be purchased if the company’s required rate of return
is 14%?
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