4 value: 1.00 points A piece of laborsaving equipment has just come onto the mar

Question

4 value: 1.00 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: 682,000 Purchase cost of the equipment Annual cost savings that will be provided by the equipment Life of the equipment 110,000 10 years Required 1-a. Compute the payback period for the equipment. ayback Period Choose Numerator: 1 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 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 Retu Choose Numerator: Choose Denominator: Simple Rate of Return Simple rate of return

Explanation / Answer

1-a.

Payback period = Investment / Annual cash flow

= 682,000 / 110,000

= 6.2 years.

1-b.

NO (as the payback period is more than the required payback period).

2-a.

Simple rate of return = Cash flows / Investment

= 110,000 / 682,000

= 16.13%.

2-b.

YES (as the rate of return is more than the required rate of return).

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