Ramson Corporation is considering purchasing a machine that would cost $544,640

Question

Ramson Corporation is considering purchasing a machine that would cost $544,640 and have a useful life of 9 years. The machine would reduce cash operating costs by $85,100 per year. The machine would have a salvage value of $107,140 at the end of the project. (Ignore income taxes.)

Required:

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

b. Compute the simple rate of return for the machine. (Round your intermediary answers to nearest whole dollar and your final answer to 2 decimal places.)

Explanation / Answer

a) Payback period = Initial investment/cash operating cost saving

= 544640/85100

Payback period = 6.4 years

b) Simple rate of return = Annual increment income *100/initial investment

Annual incremental income = 85100-(544640-107140/9) = 36489

Simple rate of return = 36489*100/544640 = 6.70%

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.