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Exercise 11-8 Payback period and accounting rate of return on investment LO P1, P2 B2B Co. is considering the purchase of equipment that would allow
Exercise 11-8 Payback period and accounting rate of return on investment LO P1, P2 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 equipment's product each year. The expected annual income related to this equipment follows. $ 75,000 Sales Costs 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 (30%) 40,000 10,000 7,500 57,500 17,500 5,250 $ 12,250 Net income 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 Numerator: Choose Denominator: = Payback Period / = Payback period II Required 1 Required 2 Compute the accounting rate of return for this equipment. Accounting Rate of Return Choose Numerator: 1 Choose Denominator: Accounting Rate of Return = Accounting rate of return
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