2.99 See Answer

Question: A piece of labor-saving equipment has


A piece of labor-saving 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…………………………………….. $432,000
Annual cost savings that will be
provided by the equipment ………………………………………………..$90,000
Life of the equipment………………………………………………………..12 years

Required:
1. What is the payback period for the equipment? If the company requires a payback period of four years or less, would the equipment be purchased?
2. What is the simple rate of return on the equipment? Use straight-line depreciation based on the equipment’s useful life. Would the equipment be purchased if the company’s required rate of return is 14%?



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2.99

See Answer