Martin Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows: (Ignore income taxes.)

Purchase cost	$	325,000
Annual cost savings that will be provided by the equipment	$	38,400
Life of the equipment		13 years

Required:

1a.	Compute the payback period for the equipment. (Round your answer to 2 decimal places.)

Payback period

years

1b.

If the company rejects all proposals with a payback period of more than 7 years, would the equipment be purchased?

	Yes
	No

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