Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are: Increased revenues Increased expenses Salary of additional operator $56,000 Supplies Depreciation Maintenance Increased net income 14,000 12,000 8,000 $120,000 90,000 $30,000 (Ignore income taxes in this problem.) Required: 1. What is the payback period on the new equipment? 2. What is the simple rate of return on the new equipment?

Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are: Increased revenues Increased expenses Salary of additional operator $56,000 Supplies Depreciation Maintenance Increased net income 14,000 12,000 8,000 $120,000 90,000 $30,000 (Ignore income taxes in this problem.) Required: 1. What is the payback period on the new equipment? 2. What is the simple rate of return on the new equipment?

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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