Exercise 13-13 Basic Payback Period and Simple Rate of Return Computations [LO13-1, LO13-6]

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	$	640,500
Annual cost savings that will be provided by the equipment	$	105,000
Life of the equipment		10 years

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