$13$

Mitsui Electronics, Limited, is considering buying a labor$-$saving pierce of equipment and provided the following data:

Purchase cost of the equipment

Annual cost savings that will be provided by the equipment

$0\mathrm{.}57$

points

eBook

References

Life of the equipment

Required:

$$425,000$

$$85,000$

$1$a$.$ Compute the payback period for the equipment.

$1$b$.$ If the company requires a payback period of four years or less, would it buy the equipment?

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

$2$b$.$ Would the company buy the equipment if its required rate of return is $12\%?$