Chapter 14Capital Budgeting Decisions127.(Ignore income taxes in this problem.) Alesi Company is considering purchasing amachine that would cost $243,600 and have a useful life of 8 years. The machinewould reduce cash operating costs by $76,125 per year. The machine would have asalvage value of $60,900 at the end of the project.Required:a.Compute the payback period for the machine.b.Compute the simple rate of return for the machine.Level: MediumLO: 5,6Answer:
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Garrison, Managerial Accounting, 12th Edition755128.A company is considering purchasing an asset for $60,000 that would have a usefullife of 5 years and would have a salvage value of $7,000. For tax purposes, the entireoriginal cost of the asset would be depreciated over 5 years using the straight-linemethod and the salvage value would be ignored. The asset would generate annual netcash inflows of $27,000 throughout its useful life. The project would requireadditional working capital of $1,000, which would be released at the end of theproject. The company's tax rate is 30% and its discount rate is 10%.Required:What is the net present value of the asset?Level: MediumLO: 8Appendix: 14D