Alesi Corporation is considering purchasing a machine that would cost $554,960 a

Question

Alesi Corporation is considering purchasing a machine that would cost $554,960 and have a useful life of 7 years. The machine would reduce cash operating costs by $99,100 per year. The machine would have a salvage value of $107,280 at the end of the project. (Ignore income taxes.) Required: Compute the payback period for the machine. (Round your answer to 2 decimal places.) 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.)

Explanation / Answer

a Payback period = 554960/99100= 5.6 years b Annual net income=99100-(554960-107280)/7= 35146 Simple rate of return =35146/554960= 6.33%

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