Exercise $14-13($Algo$)$ Payback Period and Simple Rate of Return Computations $[$L$014-1,$ L$014-6]$

A piece of labor$-$saving equipment has just come onto the market that Mitsui Electronics, Limited, could use to reduce

costs in one of its plants in Japan. Relevant data relating to the equipment follow:

Purchase cost of the equipment $$530,000$

Annual cost savings that will

be provided by the equipment $$100,000$

Life of the equipment

$10$ years

Required:

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

$1$b$.$ 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.

$2$ b$.$ Would the equipment be purchased if the company's required rate of return is $15\%?$