Exercise 12-13 Payback Period and Simple Rate of Return Computations [LO12-1, LO12-6]A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of itsplants in Japan. Relevant data relating to the equipment follow:Purchase cost of the equipmentAnnual cost savings that will beprovided by the equipmentLife of the equipment$432,000$ 90,00012 yearsRequired:la. 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%?Complete this question by entering your answers in the tabs below.Req 1AReq 18Req 2AReg 2BCompute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment's useful life.(Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)Simple rate of return< Reg 1BRea 2B>< Prey4 of 6Next >10stvMacBook Air80DIDDF1F2F3F4F5F6F9F10F11@#$&*134QWERY[AH.JKCVNく?Command.. .この* COコ SavedExercise 12-13 Payback Period and Simple Rate of Return Computations [LO12-1, LO12-6]A piece of labor-saving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of itsplants in Japan. Relevant data relating to the equipment follow:$432,000Purchase cost of the equipmentAnnual cost savings that will beprovided by the equipmentLife of the equipment$ 90,00012 yearscesRequired: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%?Complete this question by entering your answers in the tabs below.Reg 1AReq 1BReg 2AReq 2BCompute the payback period for the equipment. (Round your answer to 1 decimal place.)Payback periodYearsReq 1AReq 1B >Graw< Prev.4 of 6Next >10tvMacBook Air80888DIDDF2F4F5F6F7FBF9F1011@#3$&*一1467QWEYSDGHJKC.M>B>

Payback period of investment means in how much years or period the amount of initial investment will…

Exercise 12-13 Payback Period and Simple Rate of Return Computations [LO12-1, LO12-6] 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 Annual cost savings that will be provided by the equipment Life of the equipment $432,000 $ 90,000 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%? Complete this question by entering your answers in the tabs below. Req 1A Reg 18 Req 2A Req 28 Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment's useful life. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Simple rate of retum

Exercise 12-13 Payback Period and Simple Rate of Return Computations [LO12-1, LO12-6] 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 Annual cost savings that will be provided by the equipment Life of the equipment $432,000 $ 90,000 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%? Complete this question by entering your answers in the tabs below. Req 1A Reg 18 Req 2A Req 28 Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment's useful life. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) Simple rate of retum

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 16P: REPLACEMENT CHAIN The Fernandez Company has an opportunity to invest in one of two mutually...

See similar textbooks

Similar questions

Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6] Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division’s return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,140,000 investment in equipment with a useful life of five years and no salvage value. Holston Company’s discount rate is 16%. The project would provide net operating income each year for five years as follows: Sales $ 3,400,000 Variable expenses 1,450,000 Contribution margin 1,950,000 Fixed expenses: Advertising, salaries, and other fixedout-of-pocket costs $ 670,000 Depreciation 828,000 Total fixed expenses 1,498,000 Net operating income $ 452,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount…
Exercise 14-3 (Algo) Internal Rate of Return [LO14-3] Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final answer…
Exercise 14-3 (Algo) Internal Rate of Return [LO14-3] Wendell’s Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,500 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.60 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final answer…
Exercise 14-2 (Algo) Net Present Value Analysis [LO14-2] The management of Kunkel Company is considering the purchase of a $22,000 machine that would reduce operating costs by $5,000 per year. At the end of the machine’s five-year useful life, it will have zero salvage value. The company’s required rate of return is 16%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
REPLACEMENT CHAIN The Fernandez Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next eight years. Machine A costs 10 million but will provide after-tax inflows of 4 million per year for 4 years. If Machine A were replaced, its cost would be 12 million due to inflation and its cash inflows would increase to 4.2 million due to production efficiencies. Machine B costs 15 million and will provide after-tax inflows of 3.5 million per year for 8 years. If the WACC is 10%, which machine should be acquired? Explain.