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1. (Ignore income taxes in this problem.) Gocke Company is considering purchasing a machine that would cost $478,800 and have

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Answer #1

Solution a:

Payback period = Initial Investment / Annual Savings in cash Operating costs

= $478,800 / $114000 = 4.2 years

Solution b:

Annual Net Income = Annual Savings in cash Operating costs - Annual Depreciation = $114000 - ($478800/5) = $18,240

Simple Rate of Return = Annual Net income / Initial Investment = $18240 / $478800 = 3.81%

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