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Serial Problem Business Solutions LO P1, P2

Serial Problem Business Solutions LO P1, P2

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

 
manish jayant 10-Sep-2020

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