What is the simple rate of return on the new equipment

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Reference no: EM133502746

Case: Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:

Increased revenues	$10,000	$120,000
Increased expenses	14,000
Salary of additional operator
Supplies
Depreciation 12,000
Maintenance	8,000	90,000
Increased net income		$30,000

Required:

Question 1. What is the payback period on the new equipment?

Question 2. What is the simple rate of return on the new equipment?

Reference no: EM133502746

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