Ferris Company has an old machine that is fully depreciated but has a current salvage value of $5,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:

Increased revenues$63,000

Increased expenses:

Salary of additional operator$20,000

Supplies9,000

Depreciation 12,000

Maintenance4,00045,000

Increased net income$18,000

(Ignore income taxes in this problem.)

Required:

a) What is the payback period on the new equipment?

b) What is the simple rate of return on the new equipment?