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$432,000Annual cost savings that will beprovided by the equipment$90,000Life of the equipment12 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 14%?

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3E: Average rate of returnnew product Hana Inc. is considering an investment in new equipment that will...

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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	$	432,000
Annual cost savings that will be provided by the equipment	$	90,000
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 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 14%?

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