A piece of laborsaving 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 (currency is in thousands of yen, denoted by ¥):

Required:

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

2. Compute 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%?

Purchase cost of the equipment 432,000 Annual cost savings that will be provided by the equipment Life of the equipment 90,000 12 years