Serial Problem Business Solutions LO P1, P2 Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $371,000 and to have a seven-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment’s product each year. The expected annual income related to this equipment follows.           Sales $ 375,000   Costs       Materials, labor, and overhead (except depreciation)   195,000   Depreciation on new equipment   53,000   Selling and administrative expenses   30,000   Total costs and expenses   278,000   Pretax income   97,000   Income taxes (40%)   38,800   Net income $ 58,200      Required:(1) Compute the payback period.   Payback PeriodChoose Numerator:/Choose Denominator:=Payback Period/=Payback period =0   (2) Compute the accounting rate of return for this equipment. Accounting Rate of ReturnChoose Numerator:/Choose Denominator:=Accounting Rate of Return/=Accounting rate of return0

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Serial Problem Business Solutions LO P1, P2

Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $371,000 and to have a seven-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment’s product each year. The expected annual income related to this equipment follows.
 
 

       
Sales $ 375,000  
Costs      
Materials, labor, and overhead (except depreciation)   195,000  
Depreciation on new equipment   53,000  
Selling and administrative expenses   30,000  
Total costs and expenses   278,000  
Pretax income   97,000  
Income taxes (40%)   38,800  
Net income $ 58,200  
 

 
Required:
(1) Compute the payback period.

 

Payback PeriodChoose Numerator:/Choose Denominator:=Payback Period/=Payback period =0

 

(2) Compute the accounting rate of return for this equipment.

Accounting Rate of ReturnChoose Numerator:/Choose Denominator:=Accounting Rate of Return/=Accounting rate of return0

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