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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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