Adams Manufacturing Company is considering purchasing a machine that could reduce labor costs in one of its facilities in North Carolina. The relevant information for the machine follows:

The purchase cost of the machine	$	378,000
Annual cost savings that will be provided by the machine	$	70,000
Life of the machine	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 machine be purchased?

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

2b. Would the machine be purchased if the company’s required rate of return is 16%?

Answer rating: 100% (QA)

Answer 1a Calculation of Payback period Payback period Purch... View the full answer