Solve the following problems pertaining to capital-investment analysis.
a. The K. Wilson Company must purchase a new Xerox machine for her expanding business at the price of $16,000 and they estimate a net profit before depreciation of $2,500. Compute the payback period.
b. Mr. Smith just purchased a "super duper" Caterpillar for $110,000. The average net income is $20,000 and average depreciation is $10,000. Compute the simple rate of return on this purchase.