Ferris Company has an old machine that is fully depreciated but has a current salvage value of $5,000. The company wants to purchase a new machine which would cost $60,000 and have a 5-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:

Required:

1. Compute the payback period on the new equipment.

2. Compute the simple rate of return on the new equipment.

Increased revenues........ Increased expenses: Salary of additional operator......... $20,000 Supplies...... 9,000 Depreciation..... 12,000 Maintenance..... 4.000 Increased net operating income....... $63,000 45,000 $18.000