Adria Lopez is considering the purchase of equipment for Success Systems that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It will be depreciated on a straight-line basis. Success Systems expects to sell 100 units of the equipments product each year. The expected annual income related to this equipment follows.

Sales

$

375,000

Costs

Materials, labor, and overhead (except depreciation)

200,000

Depreciation on new equipment

50,000

Selling and administrative expenses

37,500

Total costs and expenses

287,500

Pretax income

87,500

Income taxes (30%)

26,250

Net income

$

61,250

1. Compute the payback period (**fill in the chart and explain answers**)

Pay Back Period
Cost of investment:	/	Annual net cash flow:	Pay Back Period
1)		2)	3)

2. Compute the accounting rate of return for this equipment. (**fill in the chart and explain answers**)

Accounting Rate of Return
Annual after- tax net income:	/	annual average investment:	Accounting Rate of Return
4)		5)	6)