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Compute the payback period for the equipment

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Reference no: EM133156571

Question - Adams Manufacturing Company is considering purchasing a machine that could reduce labor costs in one of its facililties in North Carolina. The relevant information for the machine follow:

Purchase cost of the machine $494,000

Annual cost savings that will be provided by the machine $95,000

Life of the machine 10 years

Required -

1a. Compute the payback period for the equipment.

1b. If the company requires a payback period of four years or less, would the machine be purchased?

2a. Compute the simple rate of return on the machine. Use straight-line depreciation based on the machine's useful life.

2b. Would the machine be purchased if the company's required rate of return is 14%?

Reference no: EM133156571

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