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What is the simple rate of return on the new equipment

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Reference no: EM132510919

Capilano Inc. has an old machine that is fully depreciated but has a current salvage value of $6,000. 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 revenue $60000 CR

Increased expenses:

Salary of additional operator $20000 DR

Supplies $ 9000 DR

Depreciation $12000DR

maintenance $4000DR 45000 CR

Increased net income $18000CR

Required:

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

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

Reference no: EM132510919

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