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

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	$	484,500
Annual cost savings that will be provided by the equipment	$	85,000
Life of the equipment	12 years

Required:

1a. Compute the payback period for the equipment.

1b. If the company requires a payback period of four years or less, would the equipment be purchased?

2a. Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life.

2b. Would the equipment be purchased if the company’s required rate of return is 14%?

Solutions

Expert Solution

The answer has been presented to the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

ekkarill92 answered 8 months ago

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