value 6.00 points Alesi Corporation is considering purchasing a machine that wou

Question

value 6.00 points Alesi Corporation is considering purchasing a machine that would cost $320,430 and have a useful life of 5 years. The machine would reduce cash operating costs by $97,100 per year. The machine would have a salvage value of $107,260 at the end of the project. (ignore income taxes) Required: the payback period for the machine. (Round your answer to 2 decimal places.) a. years b. Compute the simple rate of return for the machine (Round your internediate answers to nearest whole dollar and your final answer to 2 decimal places.) O Type here to search 0

Explanation / Answer

a) Calculate payback period Payback period = Investment/cash flows for the year *note : reduction of cost is considered as cash flows Investment 320430 Cash flows 97100 Payback period(320430/97100) 3.3 years b) Calculate the simple rate of return Cost of machine,net of salvage value (320430-107260) 213170 Useful life 5 Depreciation for the year 42634 Simple rate of return(cost savings per annum-depeciation per annum)/investment (97100-42634)/320430 0.169978 Simple rate of return ( rounded off) 17%

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