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Question(s) / Instruction(s):

A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow

  Purchase cost of the equipment                                                             336,000

  Annual cost savings that will be provided by the equipment      39,400 

  Life of the equipment  14 years 

Required:

1)

(a)          Compute the payback period for the equipment.

(b)          If the company requires a payback period of 8 years or less, would the equipment be purchased?

2)

Use straight-line depreciation based on the equipment's useful life.

(a)          Compute the simple rate of return on the equipment.

(b)          Would the equipment be purchased if the company's required rate of return is 6%?

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