SOLUTION:

Adria Lopez is considering the purchase of equipment for Success Systems that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It will be depreciated on a straight-line basis. Success Systems expects to sell 100 units of the equipments product each year. The expected annual income related to this equipment follows. Sales S 375,000 Costs Materials, labor, and overhead (except depreciation) 200,000 Depreciation on new equipment 50,000 Selling and administrative expenses 37,500 Total costs and expenses 287,500 Pretax income 87,500 Income taxes (30%) 26,250 Net income S 61,250 Require:- Compute the (1) payback period and (2) accounting rate for this equipment. (Record answers as percents, rounded to one decimals