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v Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer

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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 line. The equipment is expected to cost $264,000 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 equipments product each year. The expected annual income related to this equipment follows.

Sales $ 378,000
Costs
Materials, labor, and overhead (except depreciation) 193,000
Depreciation on new equipment 44,000
Selling and administrative expenses 31,500
Total costs and expenses 268,500
Pretax income 109,500
Income taxes (35%) 38,325
Net income $ 71,175

Required: (1) Compute the payback period.

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

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