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:
(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%?
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