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Return to question Exercise 24-8 Payback period and accounting rate of return on investment LO P1, P2 B2B Co. is considering the purchase of equipment
Return to question 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 equipment's product each year. The expected annual income related to this equipment follows. Sales Costa Materials, labor, and overhead (except depreciation on new equipment Depreciation on new equipment Selling and administrative expenses Total costs and expensen Pretax income Income taxes (309) Net income $ 270,000 144,000 36,000 27,000 207.000 63,000 18,900 $ 44,200 1. Compute the payback period. 2. Compute the accounting rate of return for this equipment 2. Compute the accounting rate of return for this equipment. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the payback period. Choose Numerator: Cost of investment Payback Period Choose Denominator: 1 Annual net cash flow $ 80,100 Payback Period Payback period 5.39 years 432,000 Required Required 2 > 2. Compute the accounting rate of return for this equipment. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. 3:24:42 Required 1 Required Compute the accounting rate of return for this equipment. Choose Numerator: Accounting Rate of Return Choose Denominator: Annual average Investment $ 432,000 1 Annual after-tax net income 44,100 Accounting Rate of Return Accounting rate of return 10.21 % 1
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