Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $343,000 and to have a seven-year life and no salvage value. It will be depreciated on a straight- line basis. Business Solutions expects to sell 100 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 378,000 Sales Costs Materials, labor, and overhead (except depreciation) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (35%) Net income 197,000 49,000 34,500 280,500 97,500 34,125 $ 63,375 Required: (1) Compute the payback period. Payback Period Choose Denominator: Choose Numerator: I = Payback Period Payback period (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 |