Beacon Company is considering purchasing new equipment for $350,000.The equipment has a 5-year useful life, and depreciation

Question:

Beacon Company is considering purchasing new equipment for $350,000.The equipment has a 5-year useful life, and depreciation would be $70,000 (assuming straight-line depreciation and zero salvage value).The purchase of the equipment should increase net income by $40,000 each year for 5 years.

(a) Compute the annual rate of return.

(b) Compute the cash payback period.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...