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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
EXERCISE 13–11 Basic Payback Period and Simple Rate of Return Computations [LO5, LO6] Colchester Company is considering purchasing a new piece of equipment. Relevant informa- tion concerning the equipment follows:
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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, will 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, assuming $0 salvage value. Will the equipment be pur- chased if the company’s required rate of return is 14%?
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