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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 $205,000 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 $ 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 (306) 195.000 41. 11.00 270.000 $ 75.000 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 $205,000 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. $ 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 (30%) Net Income 198,000 41.000 31,000 270.000 188.000 32.400 75.600 $ 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 $205,000 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. $ 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 (30) Net income 198,000 41.000 31.000 270.00 188.000 32.400 $ 75,600 Required: (1) Compute the payback period
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