Solution-Compute the accounting rate of return for this

Compute the accounting rate of return for this equipment

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Reference no: EM132970097

Problem - B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $264,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 105,600 units of the equipment's product each year. The expected annual income related to this equipment follows.

Sales	$165,000
Costs Materials, labor, and overhead (except depreciation on new equipment)	88,000
Depreciation on new equipment	22,000
Selling and administrative expenses	16,500
Total costs and expenses	126,500
Pretax income	38,500
Income taxes (50%)	19,250
Net income	$19,250

Required -

1. Compute the payback period.

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

Reference no: EM132970097

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Compute the accounting rate of return for this equipment

Reference no: EM132970097

Reference no: EM132970097

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