Question

# 30. Ramson Corporation is considering purchasing a machine that would cost \$633,080 and have a useful...

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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