Adria lopez is considering the purchase of equipment for

Reference no: EM13577821

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 life and no salvage value. It will be depreciated on a straight-line basis. Success Systems expects to sell 100 units of the equipments product each year. The expected annual income related to this equipment follows.

Sales

375,000

Costs

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

1. Compute the payback period (**fill in the chart and explain answers**)

Pay Back Period
Cost of investment:	/	Annual net cash flow:	Pay Back Period
1)		2)	3)

2. Compute the accounting rate of return for this equipment. (**fill in the chart and explain answers**)

Accounting Rate of Return
Annual after- tax net income:	/	annual average investment:	Accounting Rate of Return
4)		5)	6)

Reference no: EM13577821

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