Takhini Hot Springs 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

Supplies

9,000

Depreciation

12,000

Maintenance

4,000

45,000

Increased net income

$18,000

Required:

1.What is the payback period on the new equipment?

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