Question:
Spooner corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income of $53,000. The equipment will have an initial cost of$503,000 and have an six year life. There is no salvage value of the equipment. The hurdle rate is 12%. Ignore income taxes.
1. Calculate accounting rate of return.
2. Calculate payback period.