Question

Ramson Corporation is considering purchasing a machine that would cost \$283,850 and have a useful life...

Ramson Corporation is considering purchasing a machine that would cost \$283,850 and have a useful life of 5 years. The machine would reduce cash operating costs by \$81,100 per year. The machine would have a salvage value of \$107,100 at the end of the project. (Ignore income taxes.)

Required:

a. Compute the payback period for the machine. (Round your answer to 2 decimal places.)

b. Compute the simple rate of return for the machine. (Round your intermediate calculations to the nearest whole dollar and your final answer to 2 decimal places.)

 1) payback period initial investment/annual net cash flow 283,850/81100 3.5 years 2) simple rate of return Annual incremental net operating income/initial investment 45,750/283850 16.12% Annual incremental cost savings 81,100 annual depreciation (283850-107100)/5= 35350 Annual incremental net operating income 45,750

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