Purchase cost of the equipment Annual cost savings that wili be provided by the equipment Life of the equipment...... $432,000 ..... $90,000 ... 12 years
Purchase cost of the equipment Annual cost savings that wili be provided by the equipment Life of the equipment...... $432,000 ..... $90,000 ... 12 years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Payback Period and Simple
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:
Required:
1. What is the payback period for the equipment? If the company requires a payback period of four years or less, would the equipment be purchased?
2. What is the simple rate of return on the equipment? Use straight-line depredation based on the equipment’s useful life. Would the equipment be purchased if the company’s required rate of return is 14%?
Transcribed Image Text:Purchase cost of the equipment
Annual cost savings that wili be
provided by the equipment
Life of the equipment......
$432,000
.....
$90,000
...
12 years
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