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 $413,000 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 equipments product each year. The expected annual income related to this equipment follows.

Sales	$	385,000
Costs
Materials, labor, and overhead (except depreciation)		197,000
Depreciation on new equipment		59,000
Selling and administrative expenses		37,500
Total costs and expenses		293,500
Pretax income		91,500
Income taxes (35%)		32,025
Net income	$	59,475

Required:
(1)	Compute the payback period.

(2)	Compute the accounting rate of return for this equipment.

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 $413,000 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. $385,000 Costs Materials, labor, and overhead (except depreciation) 197.000 Depreciation on new equipment 59.000 37,500 Selling and administrative expenses Total costs and expenses 293.500 91,500 Pretax income Income taxes (35%) 32,025 Net income 59,475 Required (1)Compute the payback period. Payback Period Choose Numerator: Choose Denominator: Payback Period 3 Payback period (2) Compute the accounting rate of return for this equipment. Accounting Rate of Return choose Numerator: Choose Denominator: Accounting Rate of Return Accounting rate of return