Answer:
Jupiter Ltd.
A. The discounted payback period is:
= 3.2 years
B. The accrual accounting rate of return for the investment is:
= 57.79%
Explanation:
a) Data and Calculations:
Cost of new equipment = $90,000
Additional costs:
Installation $5,000
Testing 4,500 9,500
Total cost of new equip. $99,500
Rate of return = 9%
Savings:
Salvage value, $12,000 discounted by 0.650 = $7,800
Annual estimated cash savings, $29,000 by 3.890 = $112,810
Total savings = $120,610
Annual equivalent savings = $31,005 ($120,610/3.890)
Discounted payback period = $99,500/$31,005 = 3.2 years
The returns from the investment:
Salvage value = $12,000
Cash savings = 145,000
Total savings = $157,000
Initial investment 99,500
Returns = $57,500
Accrual accounting rate of return = $57,500/$99,500 * 100 = 57.79%
