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Exercise 24-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $120,000 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. $ 75,000 40,000 10,000 7,500 $ 17,500

Exercise 24-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $120,000 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. $ 75,000 40,000 10,000 7,500 $ 17,500

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Exercise 24-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $120,000 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. $ 75,000 40,000 10,000 7,500 $ 17,500
Transcribed Image Text:Exercise 24-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $120,000 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. $ 75,000 40,000 10,000 7,500 $ 17,500
Required A Required B Required C Compute the annual net cash flow. Annual Results from Investment Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income Net cash flow Required A Required B Compute the payback period. Numerator: Initial investment $ 1 Required C 120,000/ Required A Denominator: /Annual net cash flow Payback Period < Required A $ $ Income 75,000 40,000 10,000 7,500 17,500 $ Cash Flow Required B > Payback period Required C > 0 0
Transcribed Image Text:Required A Required B Required C Compute the annual net cash flow. Annual Results from Investment Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income Net cash flow Required A Required B Compute the payback period. Numerator: Initial investment $ 1 Required C 120,000/ Required A Denominator: /Annual net cash flow Payback Period < Required A $ $ Income 75,000 40,000 10,000 7,500 17,500 $ Cash Flow Required B > Payback period Required C > 0 0
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