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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
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 $300,000 and to have a six-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. Sales $ 377,000 Costs Materials, labor, and overhead (except depreciation) 196,000 Depreciation on new equipment 50,000 Selling and administrative expenses 35,500 Total costs and expenses 281,500 Pretax income 95,500 Income taxes (40%) 38,200 Net income $ 57,300 Required: Compute the payback period. (Round your answer to 1 decimal place.) Payback period years Compute the accounting rate of return for this equipment. (Round your answer to 1 decimal place. Omit the "%" sign in your response.) Accounting rate of return %
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