Question

QUESTION 9 20 points Sa Initial One-time Net cost Average Tax Tax Yearly tooling ($) () 32,000 investment savings in of CNC yearly credit rate depreciation | (10%) savings ($) | (46%) | of CNC ($) 130,250 62,500 .1 46 10,500 "Given the investment figures in the table for implementing a new CNC machine tool, determine the payback period and the annual return on investment. The CNC is conservatively estimated to have a useful life of 10 years. Please keep two digits after the decimal point for your results of payback period and RO Net Cost of CNS Payback Period - Return on Investment

Answer 1

Net cost of CNC:

= $130,250-$32,000

= $98,250

Payback Period:

= (Net Cost of CNC - Net Cost of CNC * Tax Credit)÷( Savings - Savings * Tax Rate + Yearly Depreciation of CNC * Tax Rate)

= (98,250-98,250×0.1)÷(62,500-62,500×0.46+10,500*0.46)

= 2.29 years

Return on Investment:

= (Average Yearly Savings - Net Cost of CNC/Years of Life)÷ Net Cost of CNC

= (62,500-98,250/10)/98,250

= 53.61% or 54%