Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:Increased revenues$10,000$120,000Increased expenses14,000 Salary of additional operator Supplies Depreciation 12,000 Maintenance8,00090,000Increased net income $30,000(Ignore income taxes in this problem.) Required:1. What is the payback period on the new equipment?2. What is the simple rate of return on the new equipment?

Data given:Salvage value of fully depreciated machine= $10,000Cost of new machine= $60,000Useful…

Answered: Wizard Company has an old machine that…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage...

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Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:

Increased revenues	$10,000	$120,000
Increased expenses	14,000
Salary of additional operator
Supplies
Depreciation 12,000
Maintenance	8,000	90,000
Increased net income		$30,000