4 value: 15.00 points A piece of laborsaving equipment has just come onto the ma

Question

4 value: 15.00 points 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: Purchase cost of the equipment Annual cost savings that will be $ 459,000 provided by the equipment Life of the equipment $90,000 12 years Required 1-a. Compute the payback period for the equipment. Payback Period Choose Numerator: Choose Denominator:Payback Period Payback period years 1-b. If the company requires a payback period of four years or less, would the equipment be purchased? Yes 0 2-a. Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment's useful life Simple Rate of Return Choose Numerator: Choose Denominator: Simple Rate of Return Simple rate of return

Explanation / Answer

1a. Payback Period = Purchase Cost of Equipment / Annual Cost Saving

= $ 459,000 / $ 90,000

= 5.1 Years

1b. If compny Payback Period of Four Year or Less than Equipment Would Not be Purchased. Because Pyaback Period Is 5.1 Years More Than 4 Years.

2a. Depreciation = $ 459,000/12Years

= $ 38,250 Per Year

Adjusted Annual Cost Saving = Annual Cost Saving - Depreciation

= $ 90,000 - $ 38,250

= $ 51,750

Simple Rate of Return = Adjusted Annual Cost Saving / Cost of Equipment *100

= $ 51,750 / $ 459,000 * 100

= 11.27 %

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