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: elea a rlin ettonica Le Purchase cost of the equipment Annual cost savings that will be $522,000 provided by the equipment Life of the equipment $ 90,000 10 years Required: 1-a. Compute the payback period for the equipment. Payback Period Choose Numerator: Payback Period Payback period years Choose Denominator: 1-b. If the company requires a payback period of four years or less, would the equipment be purchased? O Yes O No

Explanation / Answer

Payback Period Cost of Plant/Annual Savings =522000/90000 5.8 yrs No , the project should not be taken if payback period of less than 4 years is desired Annual savings $    90,000.00 Less:depriciation $    52,200.00 Savings after depriciatoin $ 37,800.00 Simple rate of return 7.24% =37800/522000 No, with desired return of 15% , project should not be accepted

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