B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $288,000 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 Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the annual net cash flow. (b) Compute the payback period. (c) Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below. Required A Required C Compute the accounting rate of return for this equipment. Answer is complete but not entirely correc rrect. Required B $ 180,000 96,000 24,000 18,000 $ 42,000
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $288,000 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 Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income (a) Compute the annual net cash flow. (b) Compute the payback period. (c) Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below. Required A Required C Compute the accounting rate of return for this equipment. Answer is complete but not entirely correc rrect. Required B $ 180,000 96,000 24,000 18,000 $ 42,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
D2.
Transcribed Image Text:B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The
equipment costs $288,000 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
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation-Equipment
Selling, general, and administrative expenses
Income
(a) Compute the annual net cash flow.
(b) Compute the payback period.
(c) Compute the accounting rate of return for this equipment.
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the accounting rate of return for this equipment.
Accounting Rate of Return
Denominator:
Numerator:
Annual income
42,000
Required C
O
Answer is complete but not entirely correct.
7
Average investment
$
288,000 x
$ 180,000
96,000
24,000
18,000
$ 42,000
=
Accounting rate of return
14.58 %
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