Chapter 12, Problem 13E

Payback Period and Simple Rate of Return Computations
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 pevb.ck period for the equipment? If the company requires a prb.ck 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 depreciation based on the equipments useful life. Would the equipment be purchased if the company’s required rate of return is 14%?