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K2b co is considering the purchase of equipment that would

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K2B 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 $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 96,000 units of the equipment%u2019s product each year. The expected annual income related to this equipment follows.

  


  Sales $ 150,000
  Costs


    Materials, labor, and overhead (except depreciation)
80,000
    Depreciation on new equipment
20,000
    Selling and administrative expenses
15,000
  

  Total costs and expenses
115,000
  

  Pretax income
35,000
  Income taxes (30%)
10,500
  

  Net income $ 24,500
  

1.

Compute the payback period

2. Compute the accounting rate of return

Reference no: EM13581108

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