Refer to the information in Exercise 26-6. B2B Co. requires at least an 8% return on this investment.

(a) Compute the net present value of this investment. 

(b) Should the investment be accepted on the basis of net present value.

Data From Exercise 26-6

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $360,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Compute the 

(a) Annual net cash flow, 

(b) Payback period, and 

(c) Accounting rate of return for this equipment.

Transcribed Image Text:

Sales of new product ... $225,000 Expenses Materials, labor, and overhead (except depreciation)... 120,000 ...... Depreciation-Equipment... 30,000 Selling, general, and administrative expenses.. 38,250 Income.. $ 36,750