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Compute the simple rate of return on the equipment

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Reference no: EM132586273

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

Purchase cost$180,000

Annual cost savings that will be provided by the equipment$37,500

Life of the equipment 12 years

Required:

Question 1: Compute the payback period for the equipment.

Question 2: Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment's useful life, assuming $0 salvage value.

Reference no: EM132586273

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