Martin Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows: (Ignore income taxes.) Purchase cost $ 231,000 Annual cost savings that will be provided by the equipment $ 37,400 Life of the equipment 11 years Required: 1a. Compute the payback period for the equipment. (Round your answer to 1 decimal place.) Payback period 6.2 correct years 1b. If the company requires a payback period of 5 years or less, would the equipment be purchased? No correct 2a. Use straight-line depreciation based on the equipment's useful life. Compute the simple rate of return on the equipment. (Round your answer to 1 decimal place. Omit the "%" sign in your response.) Simple rate of return 7.1 correct % 2b. Would the equipment be purchased if the company's required rate of return is 8%? No correct

Martin Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows: (Ignore income taxes.)

Purchase cost	$	231,000
Annual cost savings that will be     provided by the equipment	$	37,400
Life of the equipment		11 years

   

Required:

1a.	Compute the payback period for the equipment. (Round your answer to 1 decimal place.)

Payback period

6.2  years

  

1b.	If the company requires a payback period of 5 years or less, would the equipment be purchased?
	No

2a.	Use straight-line depreciation based on the equipment's useful life. Compute the simple rate of return on the equipment. (Round your answer to 1 decimal place. Omit the "%" sign in your response.)

Simple rate of return

7.1  %

2b.	Would the equipment be purchased if the company's required rate of return is 8%?
	No