30.
Ramson Corporation is considering purchasing a machine that would cost $633,080 and have a useful life of 9 years. The machine would reduce cash operating costs by $93,100 per year. The machine would have a salvage value of $107,220 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 intermediary answers to nearest whole dollar and your final answer to 2 decimal places.)
A)Payback period =initial investment /saving in cash operating cost
= 633080 / 93100
= 6.8 years
b)depreciation =[cost- residual value ]/usefu life
=[633080-107220] / 9
= 58429
net income = 93100-58429 = 34671
**
Book value at beginning = 633080
book value at end = 107220
average investment : [633080+107220]/2 = 370150
simple rate of return = net income /average investment
= 34671/370150
= .0937 or 9.37%
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