1. A diversified food company is considering the closing of its condiment division. What qualitative factors should be considered before discontinuing a division or product line?

2. An automobile manufacturer has decided to allow outside suppliers to bid on all parts necessary to make its vehicles. What qualitative factors should be considered by management in deciding whether or not to turn over the production of a part to an outside supplier?

A company is planning to buy a new machine at a cost of $200,000. The machine is expected to last for 10 years and have no salvage value at the end of its useful life. Straight-line depreciation will be used. The company expects to save 10,000 hours of direct labor each year because of the new machine, as well as $4,000 each year in other operating costs.

Management's best estimate is that on average the hourly rate for the labor saved will be $5.50. With the exception of the initial purchase, assume all cash flows take place at the end of the year, and a tax rate of 40%.

Required:

1. Calculate the payback period on the investment in new machinery.

2. Calculate the Accounting rate of return on the average investment