Exercise 24-8 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 $432,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 172,800 units of the equipments product each year. The expected annual income related to this equipment follows.

Sales	$	270,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)		144,000
Depreciation on new equipment		36,000
Selling and administrative expenses		27,000
Total costs and expenses		207,000
Pretax income		63,000
Income taxes (30%)		18,900
Net income	$	44,100

1.	Compute the payback period.

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