29. (Payback period) Cimarron Manufacturing is considering the purchase of new production technology. The new technology would
Question:
29. (Payback period) Cimarron Manufacturing is considering the purchase of new production technology. The new technology would require an initial investment of $750,000 and have an expected life of 10 years. At the end of its life, the equipment would have no value. By installing the new equipment, the firm’s annual labor and quality costs would decline by $150,000.
a. Compute the payback period for this investment (ignore tax).
b. Assume, now, that the annual cost savings would vary according to the following schedule:
Annual Cost Savings Years 1–5 $ 75,000 Years 6–10 100,000 Compute the payback period under the revised circumstances (ignore tax).
Step by Step Answer:
Cost Accounting Traditions And Innovations
ISBN: 9780324180909
5th Edition
Authors: Jesse T. Barfield, Cecily A. Raiborn, Michael R. Kinney