Ishpreet Hot Springs Company has an old machine that is fully depreciated but has a current salvage value of $7,000. 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
Supplies	9,000
Depreciation	9,000
Maintenance	4,000	42,000
Increased net income		$21,000

Required: (answer to 2 decimal points)

1. What is the payback period on the new equipment? (5Marks)

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