Lakeside Inc. is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $10,000 per month. The new equipment will have a five-year life and cost $420,000, with an estimated salvage value of $33,000. Lakeside's cost of capital is 7%. Lakeside Inc. uses a straight-line depreciation method. Required: Calculate the payback period and the accounting rate of return for the new production equipment. (Round your answers to 2 decimal places.) Payback period 3.50 years Accounting rate of return %
Lakeside Inc. is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $10,000 per month. The new equipment will have a five-year life and cost $420,000, with an estimated salvage value of $33,000. Lakeside's cost of capital is 7%. Lakeside Inc. uses a straight-line depreciation method. Required: Calculate the payback period and the accounting rate of return for the new production equipment. (Round your answers to 2 decimal places.) Payback period 3.50 years Accounting rate of return %
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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Transcribed Image Text:Lakeside Inc. is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings
of $10,000 per month. The new equipment will have a five-year life and cost $420,000, with an estimated salvage value of $33,000.
Lakeside's cost of capital is 7%. Lakeside Inc. uses a straight-line depreciation method.
Required:
Calculate the payback period and the accounting rate of return for the new production equipment. (Round your answers to 2 decimal
places.)
Payback period
3.50 vears
Accounting rate of return
%
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