(Ignore income taxes in this problem.) Brewer Company is considering purchasing

Question

(Ignore income taxes in this problem.) Brewer Company is considering purchasing a machine that would cost $545,700 and have a useful life of 10 years. The machine would reduce cash operating costs by $84,708 per year. The machine would have a salvage value of $109,220 at the end of the project.

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

Compute the simple rate of return for the machine. (Round your intermediate calculations to nearest dollar amount and final answer to 2 decimal places.)

(Ignore income taxes in this problem.) Brewer Company is considering purchasing a machine that would cost $545,700 and have a useful life of 10 years. The machine would reduce cash operating costs by $84,708 per year. The machine would have a salvage value of $109,220 at the end of the project.

Explanation / Answer

a. Payback period = Initial cash outflow / Annual savings in cost = 545700 / 84708 = 6.44 years

b. Simple rate of return = Annual savings in cost / Initial cash outflow = 84708 / 545700 = 0.1552 or 15.52%

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