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