Reference no: EM131961997

Question 1 - A machine costs $300,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has a 8-year service life and a $60,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return.

Question 2 - Beyer Company is considering the purchase of an asset for $220,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.

	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Net cash flows	$63,000	$34,000	$63,000	$150,000	$27,000	$337,000

Compute the payback period for this investment.

Question 3 - B2B 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment's product each year. The expected annual income related to this equipment follows.

Sales	$225.000
Costs
Materials, labor, and overhead (except depreciation on new equipment)	120,000
Depreciation on new equipment	30,000
Selling and administrative expenses	22,500
Total costs and expenses	172, 500
Pretax income	52,500
Income taxes (40%)	21,000
Net income	$ 31,500

Required -

1. Compute the payback period.

2. Compute the accounting rate of return for this equipment.