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: $ 360,000 Purchase cost of the equipment Annual cost savings that will be provided by the equipment Life of the equipment S 75,000 12 years Required 1-a. Compute the payback period for the equipment. ayback 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? O Yes O No

Explanation / Answer

Requirement 1-b:

Since the payback period for the equipment is 4.8 years and the required payback period is 4 years or less, the equipment should not be purchased.

Correct Option is No.

Requirement 2-b:

Since the required rate of return is 15% and the return is 12.5%, the equipment should not be purchased.

Correct Option is No.

Requirement 1-a: Computation of payback period: Choose Numerator / Choose Denominator = Payback Period Purchase Cost / Annual Cost Savings = Payback Period 360000 / 75000 = 4.8 Payback Period 4.8 years

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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