Exercise 13-13 Basic Payback Period and Simple Rate of Return Computations [LO13-1, LO13-6] 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: Purchase cost of the equipment $ 600,000 Annual cost savings that will be provided by the equipment $ 100,000 Life of the equipment 12 years Required: 1-a. Compute the payback period for the equipment.

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

	Yes
	No

2-a.

Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipments useful life.

Would the equipment be purchased if the companys required rate of return is 12%?

	Yes
	No