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

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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:

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 market that Mitsui Electronics, Ltd., could use to Purchase cost of the equipment Annual cost savings that will be $ 560,500 provided by the equipment Life of the equipment $ 95,000 10 years Required: 1-a. Compute the payback period for the equipment. Payback Period Choose Denominator: Choose Numerator: Payback Period Payback period years 1-b. If the company requires a payback period of four years or less, would the equipment be purchased? O Yes No

Explanation / Answer

1a)Pay back period= investment required/annual net cash inflow
560500/95000=5.9 years

1b)No it should nor purchase as the payback period is higher than required period of 4 years

2a)Simple rate of return= Annual increament net income/initial inv
=(95000-(560500/10))/560500
=6.95%

2b)No, a sit is less than required return of 16%

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