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

$

600,000

Annual cost savings that will be provided by the equipment

$

100,000

Life of the equipment

12 years

1-a.

Compute the payback period for the equipment.

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
	/		=	Payback period
	/		=		years

1b.

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

	Yes
	No

2-a.	Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipments useful life.

Simple Rate of Return
Choose Numerator:	/	Choose Denominator:	=	Simple Rate of Return
	/		=	Simple rate of return
	/		=		%

2-b.

Would the equipment be purchased if the companys required rate of return is 12%?

	Yes
	No