Lakeside Incorporated is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $7,500 per month. The new equipment will have a five-year life and cost $337,500, with an estimated salvage value of $30,000. Lakeside's cost of capital is 9%. Lakeside Incorporated uses a straight-line depreciation method. Required: Calculate the payback period and the accounting rate of return for the new production equipment. Note: Round your answers to 2 decimal places. Payback period Accounting rate of return years
Lakeside Incorporated is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $7,500 per month. The new equipment will have a five-year life and cost $337,500, with an estimated salvage value of $30,000. Lakeside's cost of capital is 9%. Lakeside Incorporated uses a straight-line depreciation method. Required: Calculate the payback period and the accounting rate of return for the new production equipment. Note: Round your answers to 2 decimal places. Payback period Accounting rate of return years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Rakesh
Transcribed Image Text:Lakeside Incorporated is considering replacing old production equipment with
state-of-the-art technology that will allow production cost savings of $7,500 per
month. The new equipment will have a five-year life and cost $337,500, with an
estimated salvage value of $30,000. Lakeside's cost of capital is 9%. Lakeside
Incorporated uses a straight-line depreciation method.
Required:
Calculate the payback period and the accounting rate of return for the new
production equipment.
Note: Round your answers to 2 decimal places.
Payback period
Accounting rate of return
years
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Step 1: Payback Periods
VIEWStep 2: Computation of the payback period for the new production equipment:
VIEWStep 3: Computation of the annual depreciation using the straight-line depreciation method:
VIEWStep 4: Computation of the amount of annual Net income the new production equipment:
VIEWStep 5: Computation of the amount of average investment of new production equipment:
VIEWStep 6: Computation of the accounting rate of return for new production equipment:
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