Martin Company is considering the purchase of a new piece of equipment. Relevant information concerning...
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Accounting
| Martin Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows: (Ignore income taxes.) |
| Purchase cost | $ | 280,000 | |
| Annual cost savings that will be provided by the equipment | $ | 37,600 | |
| Life of the equipment | 14 years | ||
| Required: |
| 1a. | Compute the payback period for the equipment. (Round your answer to 2 decimal places.) |
| Payback period | years |
| 1b. | If the company rejects all proposals with a payback period of more than 6 years, would the equipment be purchased? | ||||
|
| 2a. | Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipments useful life.(Round your answer to 1 decimal place.) |
| Simple rate of return | % |
| 2b. | Would the equipment be purchased if the company's required rate of return is 5%? | ||||
|
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