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Adams Manufacturing Company is considering purchasing a machine that could reduce labor costs in one of its facililties in North Carolina. The relevant information for
Adams Manufacturing Company is considering purchasing a machine that could reduce labor costs in one of its facililties in North Carolina. The relevant information for the machine follow: Purchase cost of the machine $494,000 Annual cost savings that will be provided by the machine $ 95,000 Life of the machine 10 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 machine be purchased? 2a. Compute the simple rate of return on the machine. Use straight-line depreciation based on the machine's useful life. 2b' Would the machine be purchased if the company's required rate of return is 14%? Complete this question by entering your answers in the tabs below. Req 1A Req 13 Req 2A Req 23 ' Compute the payback period for the equipment. (Round your answer to 1 decimal place.) Req1B > Req 1A Req 1B Req 2A Req 2B If the company requires a payback period of four years or less, would the equipment be purchased? OYes ONO Req 1A Req 1B Req 2A Req 2B Would the equipment be purchased if the company's required rate of return is 14%? Yes ONo
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