K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis.The company expects to sell 96,000 units of the equipment%u2019s product each year.The expected annual income related to this equipment follows.
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| Sales |
$ |
150,000 |
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| Costs |
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|
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| Materials, labor, and overhead (except depreciation) |
|
80,000 |
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| Depreciation on new equipment |
|
20,000 |
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| Selling and administrative expenses |
|
15,000 |
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|
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| Total costs and expenses |
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115,000 |
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|
|
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| Pretax income |
|
35,000 |
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| Income taxes (30%) |
|
10,500 |
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|
|
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| Net income |
$ |
24,500 |
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| 1. |
Compute the payback period
2. Compute the accounting rate of return
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