Reference no: EM131492571

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.)