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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 $250,000 and to have a five-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. $ 375,000 Sales Costs Materials, labor, and overhead (except depreciation) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (40%) Net income 193,000 50,000 30,500 273,500 101,500 40,600 $ 60,900 Required: (1) Compute the payback period. Payback Period Choose Denominator: Choose Numerator: 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
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