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Calculate the roi and the payback rate

Problem:

Existing machine:

Costs: 82,500, fully depreciated except for 7,500 salvage value.

Operating costs:

Maintenance: 67,500

Costs from alternatives (after five years, both machines have for tax purpose a zero salvage value):

Machine 1

Purchase: 160,000

Operating costs: 45,000/ year

Maintenance: 27,000 for the first three (3) years, 49,500 for each year after

Salvage value: 7,500

Machine 2

Purchase: 300,000

Operating costs: 18,000/ year

Maintenance: 30,000 for the first three (3) years, 52,500 for each year after

Salvage value: 12,000

Tax rate: 35%

The total amount of overhead, absorbed by the department with the new machine will be decreased by about 31,000 with machine 1 and 58,000 with machine 2.

Depreciation:

Machine 1 Machine 2

2000 (year 1) 28,560 53,550

2001 (year 2) 37,552 70,410

2002 (year 3) 26,816 50,280

2003 (year 4) 19,152 35,910

2004 (year 5) 14,192 26,610

2005 (year 6) 14,192 26,610

Calculate the ROI and the payback rate. Must I take the overhead costs into consideration? What would be the ROI and the payback rate?

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