Answer:
Mitsui Electronics, Ltd.
1a. Payback period = 5.6 years
1b. No. The equipment would not be purchased if the company requires a payback period of four years or less.
2a. Simple rate of return = 17.86%
2b. Yes. The equipment would be purchased if the company's required rate of return is 13%.
Explanation:
a) Data and Calculations:
Purchase cost of the equipment = $ 448,000
Annual cost savings that will be provided by the equipment = $ 80,000
Life of the equipment = 10 years
1a. Payback period = 5.6 years ($448,000/$80,000)
1b. No. The equipment would not be purchased if the company requires a payback period of four years or less.
Annual return = $80,000
Initial cost of the equipment = $448,000
2a. Simple rate of return = 17.86% ($80,000/$448,000 * 100)
2b. Yes. The equipment would be purchased if the company's required rate of return is 13%.
