Solution-Compute the payback period for the equipment

Compute the payback period for the equipment

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Reference no: EM131747705

Question - Big Cat Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows:

Purchase cost: $180,000

Annual cost savings that will be provided by the equipment: $37,500

Life of the equipment: 12 years

(Ignore income taxes.)

Compute the payback period for the equipment. If the company rejects all proposals with a payback period of more than four years, would the equipment be purchased?

Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment's useful life, assuming $0 salvage value. Would the equipment be purchased if the company's required rate of return is 14%?

Reference no: EM131747705

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Compute the payback period for the equipment

Reference no: EM131747705

Reference no: EM131747705

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