A piece of laborsaving 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	$	530,000
Annual cost savings that will be provided by the equipment	$	100,000
Life of the equipment		10 years

Required:

1-a.	Compute the payback period for the equipment.

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
Annual net cash outflow	/	Investment required	=	Payback period
$30,000	/	$50,000	=	0.6	years

1-b.

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

	Yes
	No

Simple Rate of Return
Choose Numerator:	/	Choose Denominator:	=	Simple Rate of Return
Annual incremental net operating income	/	Initial investment	=	Simple rate of return
$320,000	/	$56,000	=	571.4	%

2-b.

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

	Yes
	No