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	$	270,000
Annual cost savings that will be provided by the equipment	$	60,000
Life of the equipment	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 equipments useful life.

2b. Would the equipment be purchased if the companys required rate of return is 15%?

Compute the payback period for the equipment. (Round your answer to 1 decimal place.)

Payback Period

Years

If the company requires a payback period of four years or less, would the equipment be purchased?

	Yesradio button unchecked1 of 2 Noradio button unchecked2 of 2

Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipments useful life. (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)

Simple Rate of Return

%

Would the equipment be purchased if the companys required rate of return is 15%?

	Yesradio button unchecked1 of 2 Noradio button unchecked2 of 2