Ramson Corporation is considering purchasing a machine that would cost $836,950
ID: 2595090 • Letter: R
Question
Ramson Corporation is considering purchasing a machine that would cost $836,950 and have a useful life of 14 years. The machine would reduce cash operating costs by $88,100 per year. The machine would have a salvage value of $107,170 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 = 836950/88100= 9.5 b Annual net income=88100-(836950-107170)/14= 35973 Simple rate of return = 35973/836950= 4.30%
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