Brewer Company is considering purchasing a machine that would cost $464,610 and

Question

Brewer Company is considering purchasing a machine that would cost $464,610 and have a useful life of 7 years. The machine would reduce cash operating costs by $91,100 per year. The machine would have a salvage value of $107,200 at the end of the project. (Ignore income taxes.)

Required:
a. Compute the payback period for the machine. (Round your answer to 2 decimal places.)

Payback period years?

b.
Compute the simple rate of return for the machine. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Simple rate of return % ?

Explanation / Answer

Cost = 464,610 - 107,200 = $ 357,410; Recovering rate: $91,100 per year out of a 357,410 cost, assuming redemption of salvage cost (price of used-up pre-owned machine once you sell it when you cannot use it anymore). Recover rate in percentage: (91,100 / 357,410) = 25.48893428% 25.49%, where payback means recovering the 100%.

If every year you recover 25.49% you recover the payback in (100% / 25.48893428%/year) =

3.923271131 years = 3 years + (0.9233271131 years)(12 months/year) = 3 years + 11.07925357 months =       3 years + 11 months + (0.07925357 months)(30 days/month) = 3 years + 11 months + 2.377607025 days = 3 years + 11 months + 2 days 3.92 years.

(a) 25.49%

(b) 3.92 years OR: 3 years, 11 months, and 2 days

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.