Arvada Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The compan expects to sell 96,000 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales $ 150,000 Costs Materials, 1abor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses ৪0, 000 20,000 15,000 115,000 35,000 17,500 $ 17,500 Pretax income Income taxes (508) Net income 1. Compute the payback period. 2. Compute the accounting rate of return for this equipment.

Arvada Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The compan expects to sell 96,000 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales $ 150,000 Costs Materials, 1abor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses ৪0, 000 20,000 15,000 115,000 35,000 17,500 $ 17,500 Pretax income Income taxes (508) Net income 1. Compute the payback period. 2. Compute the accounting rate of return for this equipment.

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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