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Exercise 25-8 Payback period and accounting rate of return on investment LO P1, P2 B2B Co. is considering the purchase of equipment that would allow
Exercise 25-8 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 $168,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 67,200 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 105,000 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 (20%) Net income 56,000 14,000 10,500 80,500 24,500 4,900 19,600 $ 1. Compute the payback period. 2. Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the payback period. Payback Period Choose Denominator: Choose Numerator: 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 Return Accounting rate of return
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