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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
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 $312,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 124,800 units of the equipments product each year. The expected annual income related to this equipment follows.
Sales | $ | 195,000 | |
Costs | |||
Materials, labor, and overhead (except depreciation on new equipment) | 104,000 | ||
Depreciation on new equipment | 26,000 | ||
Selling and administrative expenses | 19,500 | ||
Total costs and expenses | 149,500 | ||
Pretax income | 45,500 | ||
Income taxes (20%) | 9,100 | ||
Net income | $ | 36,400 | |
1. Compute the payback period. 2. Compute the accounting rate of return for this equipment.
Required 1 Required 2 Compute the payback period. Payback Period Choose Denominator: Choose Numerator: 7 = Payback Period Payback period Required 1 Required 2 Compute the accounting rate of return for this equipment. Accounting Rate of Return Choose Denominator: Choose Numerator: Accounting rate of returnStep by Step Solution
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