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

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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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
Increased expenses
Salary of additional operator
Supplies
Depreciation 12,000
Maintenance
Increased net income
$10,000 $120,000
14,000
8,000
90,000
$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?
Transcribed Image Text: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 Increased expenses Salary of additional operator Supplies Depreciation 12,000 Maintenance Increased net income $10,000 $120,000 14,000 8,000 90,000 $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?
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