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 $246,000 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. $ 383,000 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 195,000 41,000 39,000 275,000 108,000 43,200 $ 64,800 Required: (1) Compute the payback period. Payback Period Choose Denominator: Choose Numerator: Payback Period Payback period Required: (1) Compute the payback period. Payback Period 1 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 0 A machine can be purchased for $258,000 and used for five years, yielding the following net incomes. In projecting net incomes, double-declining depreciation is applied using a five-year life and a zero salvage value. Year 1 $14,500 Year 2 $28,000 Year 3 $73,000 Year 4 $53,500 Year 5 $112,000 Net income Compute the machine's payback period (ignore taxes). (Round payback period answer to 3 decimal places.) Year Computation of Annual Depreciation Expense Beginning Annual Depr. Accumulated Book Value (40% of Book Depreciation at Value) Year-End Ending Book Value Annual Cash Flows Year Net income Depreciation Net Cash Flow Cumulative Cash Flow $ (258,000) 2 $ (258,000) 14,500 28,000 73,000 53,500 112,000 73,000 53,500 112,000 73,000 126,500 238,500 Payback period = 1 years