Correct × D Chapter 110 hm.Apx 6. Alesi Corporation is conskdering purchasing a

Question

Correct × D Chapter 110 hm.Apx 6. Alesi Corporation is conskdering purchasing a machine that would cost $454,140 and have a usetul lite of 8 years. The machine would reduce cash operating costs by $84,100 per year. The machine would have a savage value of $107,130 at the end of the project (Ignore income taxes) Required: a. Compute the payback period for the machine. (Round your answer to 2 decimal places) years b. Compute the simple rate of return for the machine (Round your intermediate answers to nearest whole doilar and your final answer to 2 decimal places.) O Type here to search F6 F8 F9

Explanation / Answer

1) Solution: 5.4 Years

Working:

Payback period = Investment required / Net annual cash flow

= 454,140 / 84,100 = 5.4 years

In the current scenario the salvage value plays no part in the payback period because all of the investment is recovered before the end of the project

2) Solution: 8.98%

Working:

Simple rate of return = (Annual cost savings - Annual depreciation) / Initial investment

= $(84,100- $43,376) / $454,140 = 8.98%

*454,140 - 107,130 /8 years = 43,376

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---