Ferris Company Has an Old Machine That Is Fully Depreciated

question 130

Essay

Ferris Company has an old machine that is fully depreciated but has a current salvage value of $5,000.The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value.Expected changes in annual revenues and expenses if the new machine is purchased are:
$\begin{array}{|l|r|r|}\hline \text { Increased revenues } & \$ 20,000 & \$ 63,000 \\\hline \text { Increased expenses: } & 9,000 & \\\hline \text { Salary of additional operator } & & \\\hline \text { Supplies } & & \\\hline \text { Depreciation } 12,000 & & \\\hline \text { Maintenance } & \underline{4,000} & \mathbf{4 5 , 0 0 0} \\\hline\end{array}$
$$\begin{array} { | l | l | l | } \hline \text { Increased net income } & & \$ 18,000 \\\hline\end{array}$$
(Ignore income taxes in this problem.)
Required:
a)What is the payback period on the new equipment?
b)What is the simple rate of return on the new equipment?

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Definitions:

Neurotransmitters

Chemical messengers in the brain that transmit signals across synapses from one neuron to another, influencing various functions including mood and behavior.

Misbehavior

Actions or conduct that are inappropriate or violate expected rules and norms within a given context.

Unconscious Mental Activity

Activity of the mind that occurs without conscious awareness, influencing thoughts, feelings, and behaviors, a key concept in psychoanalytic theory.