Ignore income taxes in this problem swaggerty company

126. (Ignore income taxes in this problem.) Swaggerty Company is considering purchasing
a machine that would cost $462,000 and have a useful life of 7 years. The machine
would reduce cash operating costs by $115,500 per year. The machine would have no
salvage value.
Required:
a. Compute the payback period for the machine.
b. Compute the simple rate of return for the machine.
Level: Easy LO: 5,6
Answer:

Chapter 14 Capital Budgeting Decisions
127. (Ignore income taxes in this problem.) Alesi Company is considering purchasing a
machine that would cost $243,600 and have a useful life of 8 years. The machine
would reduce cash operating costs by $76,125 per year. The machine would have a
salvage 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: Medium LO: 5,6
Answer:
Garrison, Managerial Accounting, 12th Edition 755
128. A company is considering purchasing an asset for $60,000 that would have a useful
life of 5 years and would have a salvage value of $7,000. For tax purposes, the entire
original cost of the asset would be depreciated over 5 years using the straight-line
method and the salvage value would be ignored. The asset would generate annual net
cash inflows of $27,000 throughout its useful life. The project would require
additional working capital of $1,000, which would be released at the end of the
project. The company's tax rate is 30% and its discount rate is 10%.
Required:
What is the net present value of the asset?
Level: Medium LO: 8 Appendix: 14D

Chapter 14 Capital Budgeting Decisions
71,650
13,648
3,043
621
756 Garrison, Managerial Accounting, 12th Edition