Adria Lopez is considering the purchase of equipment for Success Systems that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year lite and no salvage value. It will be depreciated on a straight-line basis. Success Systems expects to sell 100 units of the equipment's product each year. The expected annual income related to this equipment follows.
Sales 375,000
Materials, labor, and overhead (except depreciation) 200,000
Depreciation on new equipment 50,000
Selling and administrative expenses ...................... 37,500
Total costs and expenses ..........________________ .................. 287,500
Pretax income ......................................... 87,500
Income taxes (30%).............................................................................................................. 26,250
Net Income .................................................................................... $ 61,250
Compute the (1) payback period and (2) accounting rate of return for this equipment. (Record answers as percent’s, rounded to one decimal.)