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Mitsui Electronics, Limited, is considering buying a labor-saving pierce of equipment and provided the following data:
| Purchase cost of the equipment | $ 299,000 | |
| Annual cost savings that will be provided by the equipment | $ 65,000 | |
| Life of the equipment | 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 it buy the equipment?
2a. Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipments useful life.
2b. Would the company buy the equipment if its required rate of return is 16%?
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