K2b co is considering the purchase of equipment that would

Reference no: EM13581108

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.


Sales	$	150,000
Costs
Materials, labor, and overhead (except depreciation)		80,000
Depreciation on new equipment		20,000
Selling and administrative expenses		15,000

Total costs and expenses		115,000

Pretax income		35,000
Income taxes (30%)		10,500

Net income	$	24,500

1.	Compute the payback period 2. Compute the accounting rate of return

Reference no: EM13581108

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