Adams Manufacturing Company is considering purchasing a machine that could reduce labor costs in one...
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Accounting
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
$
640,500
Annual cost savings that will be provided by the machine
$
105,000
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 machines useful life.
2b. Would the machine be purchased if the companys required rate of return is 13%?
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