Saved Help Save & Exit Submit 10 Check my work A piece of labor-saving equipment

Question

Saved Help Save & Exit Submit 10 Check my work 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: Purchase cost of the equipment Annual cost savings that will be $522,000 provided by the equ peent Lite of the equipment $ 90,000 10 yearS Required 1a. Compute the payback period for the equipment 1b. If the company requires a payback period of four years or less, would the equipment be purchased? 2a. Compute the simple rate of return on the equipment. Use straight-ine depreciation based on the equipment's useful life. 2b. Would the equipment be purchased if the company's required rate of return is 15%? Complete this question by entering your answers in the tabs below Req 1A Req 18 Req 2A Req 28 Compute the payback period for the equipment. (Round your answer to 1 decimal place.) Years yback Period Req 18

Explanation / Answer

1a Payback period = 522000/90000= 5.8 years b No, as payback period is more than 4 years 2a Annual depreciation = 522000/10 = $52200 Simple rate of return = (90000-52200)/522000= 7.2% b No

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