(Ignore income taxes in this problem.) Brewer Company is considering purchasing
ID: 2530356 • Letter: #
Question
(Ignore income taxes in this problem.) Brewer Company is considering purchasing a machine that would cost $607,800 and have a useful life of 10 years. The machine would reduce cash operating costs by $100,208 per year. The machine would have a salvage value of $122,220 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 $607,800 and have a useful life of 10 years. The machine would reduce cash operating costs by $100,208 per year. The machine would have a salvage value of $122,220 at the end of the project.
Explanation / Answer
Payback period = 607800/100208 = 6.07 years
Simple rate of return = Net income*100/inital investment
Net income = 100208-(607800-122220/10) = 51650
Simple rate of return = 51650*100/607800 = 8.50%
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