Alesi Corporation is considering purchasing a machine that would cost $907.280 a

Question

Alesi Corporation is considering purchasing a machine that would cost $907.280 and have a useful life of 15 years. The machine would reduce cash operating costs by $103,100 per year. The machine would have a salvage value of $107,320 at the end of the project (Ignore income taxes) Required: a, Compute the payback period for the machine. (Round your answer to 2 decimal places.) Payback ptrod years b. Compute the simple rate of return for the machine. (Round your intermediate answers to nearest whole dollar and your final answer to 2 decimal places.) Simple rate of return

Explanation / Answer

a) Payback period = 907280/103100 = 8.8 years

b) Simple rate of return = Net income *100/initial investment

Net income = 103100-(907280-107320/15) = 49769

Simple rate of return = 49769*100/907280 = 5.49%

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