B2B Co. is considering the purchase of equipment that would allow the company to

Question

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $288,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 115,200 units of the equipment's product each year. The expected annual income related to this equipment follows Sales Costs $ 180,000 Materials, labor, and overhead (except depreciation on new equipment) 96,000 24,000 18,000 138,000 42,000 21,000 $ 21,000 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (50%) Net income 1. Compute the payback period 2. Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below Required 1 Required 2 Compute the payback period Payback Period Choose Numerator: | 1 | Choose Denominator: Payback Period Payback period

Explanation / Answer

Payback period :

Accounting rate of return

Choose numerator / Choose denominator = Payback period Initial investment / Annual cash flow = Payback period 288000 / 45000 = 6.4 years

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