Harwell printing company is considering the purchase of new electronic printing

Question

Harwell printing company is considering the purchase of new electronic printing equipment. It would allow them to increase its net income by $59,904 per year. Other information about this project follows.

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connect ACCOUNTING CH 11 Qulz Instructions I help Save & Exit Submit Question 10 (of 10) Time remaining 034:57 10. Harwell Printing Co. is considering the purchase of new electronic printing equipment. It would allow Harwell to increase its net income by $59,904 per year Other information about this proposed project follows: 5312,000 Initial investment Useful life Salvage value 5 years S102,000

Explanation / Answer

Cost of equipment 312000 Salvage value 102000 Life: 5 years Annual depreciation 42000 (Cost-salvage value)/*Life Average investment 207000 (Cost+Salvage)/2 Net Income 59904 Annual cash inflows 101904 (Net income+Annual dep) Accounting rate of return; Average net income / Average investment *100 59904 /207000*100 = 28.94% Payback period: Initial investment / Annual cash inflows $ 312000 /101904 = 3.06 years

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