A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could...

80.2K

Verified Solution

Question

Finance

A piece of labor-saving equipment has just come onto the marketthat Mitsui Electronics, Ltd., could use to reduce costs in one ofits plants in Japan. Relevant data relating to the equipmentfollow:
Purchase cost of the equipment $ 640,500
Annual cost savings that will be
provided by the equipment $ 105,000
Life of the equipment 10 years
Required:
1a. Compute the payback period for the equipment.
1b. If the company requires a payback period of four years orless, would the equipment be purchased?
2a. Compute the simple rate of return on the equipment. Usestraight-line depreciation based on the equipment’s usefullife.
2b. Would the equipment be purchased if the company’s requiredrate of return is 13%?

Answer & Explanation Solved by verified expert

4.5 Ratings (806 Votes)

1aPayback period for the equipment Payback period for the equipment Initial Investment Cost Annual cash inflow 640500 105000 per year 610 Years 1bDecision based See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A piece of labor-saving equipment has just come onto the marketthat Mitsui Electronics, Ltd., could use to reduce costs in one ofits plants in Japan. Relevant data relating to the equipmentfollow:Purchase cost of the equipment$640,500Annual cost savings that will beprovided by the equipment$105,000Life of the equipment10 yearsRequired:1a. Compute the payback period for the equipment.1b. If the company requires a payback period of four years orless, would the equipment be purchased?2a. Compute the simple rate of return on the equipment. Usestraight-line depreciation based on the equipment’s usefullife.2b. Would the equipment be purchased if the company’s requiredrate of return is 13%?


Purchase cost of the equipment	$	640,500
Annual cost savings that will be provided by the equipment	$	105,000
Life of the equipment	10 years