A piece of laborsaving equipment has just come onto the market that Mitsui Elect

Question

A piece of laborsaving 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:

If the company requires a payback period of four years or less, would the equipment be purchased?

Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life.

A piece of laborsaving 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:

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Purchase cost of the equipment          494,000.00 Annual cost savings that will be     provided by the equipment            95,000.00 payback period = 494,000/95,000                       5.20 1-b No equipment should not be purchased since Payback of 5.2 years is more than 4 Years 2-a Simple rate of return = Annual Net operating inc/Initial invt Annual Net Operating income =95,000 - (494,000/10)            45,600.00 Initial Investment          494,000.00 Simple rate of return = 45,600/494,000 9.23% 2-b No , since less than 14%

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