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 $192,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 76,800 units of the equipments product each year. The expected annual income related to this equipment follows.

1. Compute the payback period. 2. Compute the accounting rate of return for this equipment.

Sales Costs 120,000 64,000 16,000 12,000 92,000 28,000 11,200 $ 16,800 Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (40%) Net income