Q1. A manufacturer is considering the purchase of a new manufacturing machine. T

Question

Q1. A manufacturer is considering the purchase of a new manufacturing machine. The machine costs $14,000 to purchase, and it is expected to save $5,000 in the first year, $4,000 in the second year, and $2,000 each year thereafter. The expected useful life of the machine is 3 years.
A)What is the payback period of this investment? (round to one decimal)

B)Based on the payback period calculation, should the manufacturer purchase this machine?
a.Yes
b.No

Q2.A manufacturer is considering the purchase of a new manufacturing machine. The machine is expected to save $7,500 per year and it costs $21,000 to purchase. The expected useful life of the machine is 7 years and there is no expected residual value at the end of the 7 years. The minimum acceptable rate of return is 8%.
A)How much annual depreciation expense should be charged against this machine? (round to nearest dollar, no dollar sign)

B)What is the accounting rate of return of this purchase? (express as a percent, no percentage sign, round to one decimal)

Q3.A manufacturer is considering the purchase of a new manufacturing machine. The machine is expected to save $6,250 per year and it costs $17,000 to purchase. The expected useful life of the machine is 4 years and there is no expected residual value at the end of the 4 years. The minimum acceptable rate of return is 10%.
A)How much depreciation expense should be charged annually against the machine using a straightline basis? (round to nearest dollar, no dollar sign)

B)What is the accounting rate of return of this purchase? (expressed as a percent, no percentage sign, rounded to one decimal)

Explanation / Answer

As per policy only 1st question will be answered

Q1 A. First year saving = 5000, second year saving =4000, third year saving = 2000, fourth year = 2000, fifth year = 2000. Total savings after 5 years = 15000

To save, 14000, it will take 4.5 years.

B. Since the machine is useful only for three years and payback is more than 3 years i.e. 4.5 years, the manufacturer shouldn't invest in the machine

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