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
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
Problem 1PS
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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
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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