8)

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 $120,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 48,000 units of the equipments product each year. The expected annual income related to this equipment follows.

Sales	$	75,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)		40,000
Depreciation on new equipment		10,000
Selling and administrative expenses		7,500
Total costs and expenses		57,500
Pretax income		17,500
Income taxes (30%)		5,250
Net income	$	12,250

1.	Compute the payback period.

2.	Compute the accounting rate of return for this equipment.