Payback period and accounting rate of return on investment 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 $360,000 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment's product each year. The expected annual income related to this equipment follows. Compute the (1) payback period and (2) accounting rate of return for this equipment.

SALES....................................................................225,000

costs

materials, labor adn overhead (except depreciation)............$120,000

Depreciation on new equipment.................................................30,000

Selling and administrative expenses 22,500

Total cost and expenses...........................................................= $172,500

Pretax income..................................................................................52,500

Income taxes (30%).........................................................................15,750

Net Income...............................................................................=....$36,750