Harwell Printing Co. is considering the purchase of new electronic printing equipment. It would allow Harwell to increase its net income by $52,734 per year. Other information about this proposed project follows: Initial investment$282,000 Useful life 5yearsSalvage value$97,000 Assume straight line depreciation method is used. Required:1. Calculate the accounting rate of return for Harwell. (Round your percentage answer to 1 decimal place.) 2. Calculate the payback period for Harwell. (Round your answer to 2 decimal places.)

Formula: Straight line method depreciation = ( Cost of Asset - salvage value ) / useful life years. Every year depreciation expense remains same for all the years in straight line method1 ) Accounting rate of return: Accounting rate of return = Annual Net income / Initial investment = 52734 / 282000 = 18.7 % Accounting rate of return = 18.7 % 2 ) Straight line method: Depreciation = ( cost of Asset - salvage value ) / useful = ( 282000 - 97000 ) / 5 = $ 37000 Annual Net cash flow = Depreciation + Net Income = 37000 + 52734 = $ 89734 Payback period = Initial investment / Annual net cash flow = 282000 / 89734 = 3.14 Years Hence, Payback period is 3.14 Years

Answered: Harwell Printing Co. is considering the…

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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Harwell Printing Co. is considering the purchase of new electronic printing equipment. It would allow Harwell to increase its net income by $52,734 per year. Other information about this proposed project follows:


Initial investment	$	282,000
Useful life		5	years
Salvage value	$	97,000

Assume straight line depreciation method is used.

Required:
1. Calculate the accounting rate of return for Harwell. (Round your percentage answer to 1 decimal place.)

2. Calculate the payback period for Harwell. (Round your answer to 2 decimal places.)

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