Serial Problem Business Solutions LO P1, P2

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 $406,000 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	$	383,000
Costs
Materials, labor, and overhead (except depreciation)		197,000
Depreciation on new equipment		58,000
Selling and administrative expenses		39,000
Total costs and expenses		294,000
Pretax income		89,000
Income taxes (35%)		31,150
Net income	$	57,850

Required: (1) Compute the payback period.

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

Payback Period Choose Denominator: Choose Numerator Payback Period Payback period 0 Accounting Rate of Return Choose Numerator: Accounting Rate of Return Choose Denominator Accounting rate of return