Purchase cost of the equipment ¥ 283,500 Annual cost savings that will be provided by the equipment ¥ 63,000 Life of the equipment 10 years
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A piece of labour-saving equipment has just come onto the market, which Kaisen Electronics Ltd. could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow (currency is in thousands of yen, denoted by ¥):
Purchase cost of the equipment | ¥ | 283,500 | |
Annual cost savings that will be provided by the equipment | ¥ | 63,000 | |
Life of the equipment | 10 | years | |
Required:
1-a. Compute the payback period for the equipment. (Round your answer to 1 decimal place.)
1-b. If the company requires a payback period of five years or less, would the equipment be purchased?
multiple choice 1
No
Yes
2-a. Compute the simple
2-b. Will the equipment be purchased if the company requires a rate of return of at least 17%?
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- Use Service-Output Method. A Machine costs ₱80,000 and an estimated life of 10 years with a salvage value of ₱5,000. Assuming that the total service of the machine is 1,497,600 hours and the number of working days per year is 260 days. What is the book value after 4 years if the machine production time a is 24 hours? Answer: BV4 = P 78,750.00Show SolutionXYZ Company is looking to invest in some new machinery to replace its current malfunctioning one. The new machine, which costs P420,000, would increase annual revenue by P200,000 and annual cash expenses by P50,000. The machine is estimated to have a useful life of 12 years and P30,000 salvage value. A. Payback period in years B. Payback period reciprocal C. Accounting rate of return on average investment.Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.
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