B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $240,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product$ 150,000Expenses Materials, labor, and overhead (except depreciation)80,000Depreciation—Equipment20,000Selling, general, and administrative expenses15,000Income$ 35,000 (a) Compute the annual net cash flow.(b) Compute the payback period.(c) Compute the accounting rate of return for this equipment. ### Annual Results from InvestmentThis table provides a detailed breakdown of the income and expenses related to an investment, specifically focusing on the sales of a new product. The financial results are presented as follows:#### Income:- **Sales of new product:** $150,000#### Expenses:- **Materials, labor, and overhead (except depreciation):** $80,000- **Depreciation—Equipment:** $20,000- **Selling, general, and administrative expenses:** $15,000#### Overview:- **Calculated Income:** $35,000- **Net Cash Flow:** $0The table highlights initial sales revenue and breaks down various types of expenses. Notably, after accounting for all expenses, the net cash flow is calculated to be zero. This suggests that while the income exceeds expenses, adjustments for depreciation result in a net cash flow that does not generate additional liquid funds. The structure of the table allows users to easily understand the composition and outcome of the investment finances, providing clarity on where funds are specifically allocated.

Payback period is a capital budgeting method under which it is defined the number of years required…

Answered: (a) Compute the annual net cash flow.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $240,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows.

Sales of new product	$ 150,000
Expenses
Materials, labor, and overhead (except depreciation)	80,000
Depreciation—Equipment	20,000
Selling, general, and administrative expenses	15,000
Income	$ 35,000

(a) Compute the annual net cash flow.
(b) Compute the payback period.
(c) Compute the accounting rate of return for this equipment.

### Annual Results from Investment

This table provides a detailed breakdown of the income and expenses related to an investment, specifically focusing on the sales of a new product. The financial results are presented as follows:

#### Income:
- **Sales of new product:** $150,000

#### Expenses:
- **Materials, labor, and overhead (except depreciation):** $80,000
- **Depreciation—Equipment:** $20,000
- **Selling, general, and administrative expenses:** $15,000

#### Overview:
- **Calculated Income:** $35,000
- **Net Cash Flow:** $0

The table highlights initial sales revenue and breaks down various types of expenses. Notably, after accounting for all expenses, the net cash flow is calculated to be zero. This suggests that while the income exceeds expenses, adjustments for depreciation result in a net cash flow that does not generate additional liquid funds.

The structure of the table allows users to easily understand the composition and outcome of the investment finances, providing clarity on where funds are specifically allocated.

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