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EXERCISE 13 12 Basic Payback Period and Simple Rate of Return Computations LO5 LO6 Martin Company is considering the purchase of a new piece of equipment Relevant information concerning the

EXERCISE 13–12 Basic Payback Period and Simple Rate of Return Computations [LO5, LO6] Martin Company is considering the purchase of a new piece of equipment. Relevant information concerning the equipment follows:

 

 

Required:

(Ignore income taxes.)

1.       Compute the payback period for the equipment. If the company rejects all proposals with a payback period of more than four years, would the equipment be purchased?

2.       Compute the simple rate of return on the equipment. Use straight-line depreciation based on the equipment’s useful life. Would the equipment be purchased if the company’s required rate of return is 14%?

Jun 27 2020 View more View Less

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