Compute the paycheck period for the equipment


Problem:

Basic Payback Period and Simple Rate of Return Computations

A piece of equipment has just come into the market. The company could se to reduce costs in one of it's plants in Japan. Relevant data relating to the equipment is below in relevant currency, the yen(V).

Purchase Cost of the equipment                                         V432000
Annual cost savings that will be provided by the equipment    V90000
Life of the equipment                                                          12 years

Ignore income taxes:

1) Compute the paycheck period for the equipment. If the company requires a payback period of 4 years or less would the equipment be purchased?

2) Compute the simple rate of return on the equipment. Use straight line depreciation based on the equipments usefull life. Would the equipment be purchased if the companies required rate ot return is 14%

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Finance Basics: Compute the paycheck period for the equipment
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