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 $320,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 128,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.
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Question & Answer: B2B Co. is considering the purchase of equipment that would allow the company to add a new produ…..
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|Materials, labor, and overhead (except depreciation)||107,000|
|Depreciation on new equipment||26,667|
|Selling and administrative expenses||20,000|
|Total costs and expenses||153,667|
|Income taxes (40%)||18,533|
|1.||Compute the payback period.
|Choose Numerator:||/||Choose Denominator:||=||Payback Period|
|Cost of investment||/||Annual net cash flow||=||Payback period|
|Accounting Rate of Return|
|Choose Numerator:||/||Choose Denominator:||=||Accounting Rate of Return|
|Annual after-tax net income||/||Annual average investment||=||Accounting rate of return|