Question

A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could...

A piece of labor-saving 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 $ 299,000 Annual cost savings that will be provided by the equipment $ 65,000 Life of the equipment 10 years Required: 1a. Compute the payback period for the equipment. 1b. If the company requires a payback period of four years or less, would the equipment be purchased? 2a. Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life. 2b. Would the equipment be purchased if the company’s required rate of return is 16%?

Homework Answers

Answer #2

Solution:

1a.)

Payback Period = Investment Required / Annual Cash inflow
= $299,000 / $65,000
= $ 4.6 years

1b.)

No, equipment should not be purchased. Actual payback period with given information is 4.6 years.

2a.)

Annual cost savings = $65,000
Less: Annual Depreciation = $24,917
(299000/12)
Annual incremental net
operating income = $ 40,083

Simple rate of return = Annual incremental income / Initial investment
= $40,083 / 299,000
= 13.4%

2b.)

No, equipment required rate of return 13.4% is less than required rate of return 16%

answered by: anonymous
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could...
A piece of labor-saving 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 $ 360,000 Annual cost savings that will be provided by the equipment $ 75,000 Life of the equipment 12 years Required: 1a. Compute the payback period for the equipment. 1b. If the company requires a payback period of four years or...
A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could...
A piece of labor-saving 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 $ 682,000 Annual cost savings that will be provided by the equipment $ 110,000 Life of the equipment 10 years Required: 1a. Compute the payback period for the equipment. 1b. If the company requires a payback period of four years or...
A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could...
A piece of labor-saving 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 $ 560,500 Annual cost savings that will be provided by the equipment $ 95,000 Life of the equipment 10 years Required: 1a. Compute the payback period for the equipment. 1b. If the company requires a payback period of four years or...
A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could...
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 $ 329,000   Annual cost savings that will be     provided by the equipment $ 70,000   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...
A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could...
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 $ 378,000 Annual cost savings that will be provided by the equipment $ 70,000 Life of the equipment 12 years Required: PART1-a. Compute the payback period for the equipment. Payback Period Choose Numerator: / Choose Denominator: = Payback Period / =...
A piece of laborsaving equipment has just come onto the market that Mitsui Electronics LTK. Could...
A piece of laborsaving equipment has just come onto the market that Mitsui Electronics LTK. Could use to reduce the costs in one of its plants in Japan. Relevant data relating to the equipment follow: Purchase cost of the equipment $484,500 Anmual cost savings that will be provided by the equipment $85,000 Life of the equipment 12 years Compute the payback period for the equipment Choose numerator choose denominator ________________/____________ = payback period Choose numerator choose denominator = _______ /...
Bardoo Inc. is looking at replacing some equipment in one of its plants. Relevant data to...
Bardoo Inc. is looking at replacing some equipment in one of its plants. Relevant data to the purchase of the equipment is as follows : Cost of the equipment $320,000 Annual saving provided by the new equipment 60,000 Salvage value of the old equipment 30,000 Expected life of the new equipment 8 years Required: 1. The owner of Bardoo would like to recoup his original investment in less than five years. Compute the payback period for the investment. Would you...
Bethlehem Company plans to replace an old piece of equipment that has no book value for...
Bethlehem Company plans to replace an old piece of equipment that has no book value for tax purposes and no salvage value. The replacement equipment will provide annual cash savings of $8,000 before income taxes. The equipment costs $20,000 and will have no salvage value at the end of its five-year life. Bethlehem uses straight line depreciation method for both book and tax purposes. The company incurs a 40% marginal tax rate, and its after-tax cost of capital is 14%....
Bethlehem Company plans to replace an old piece of equipment that has no book value for...
Bethlehem Company plans to replace an old piece of equipment that has no book value for tax purposes and no salvage value. The replacement equipment will provide annual cash savings of $8,000 before income taxes. The equipment costs $20,000 and will have no salvage value at the end of its five-year life. Bethlehem uses straight-line depreciation method for both book and tax purposes. The company incurs a 40% marginal tax rate, and its after-tax cost of capital is 14%. Required:...
Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has...
Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $47 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Per Unit 14,200 Units Per...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT