(Ignore income taxes in this problem.) Alesi Corporation is considering purchasi

Question

(Ignore income taxes in this problem.) Alesi Corporation is considering purchasing a machine that would cost $454,140 and have a useful life of 8 years. The machine would reduce cash operating costs by $84,100 per year. The machine would have a salvage value of $107,130 at the end of the project. (Assume the company uses straight-line depreciation.) Required a. Compute the payback period for the machine. (Round your answer to 2 decimal places.) Payback peri years b. Compute the simple rate of return for the machine. (Round your intermediate answers to nearest whole dollar and your final answer to 2 decimal places.) Simple rate of return

Explanation / Answer

Payback period = Initial investment/Annual cash flow

= 454140/84100

Payback period = 5.40 years

Net income = 84100-(454140-107130/8) = 40724

Simple rate of return = Net income*100/Initial investment

= 40724*100/454140

Simpel rate of return = 8.97%

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