Santana rey is considering the purchase of equipment for

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Reference no: EM13609462

Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $354,000 and to have a six-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales $ 382,000 Costs Materials, labor, and overhead (except depreciation) 193,000 Depreciation on new equipment 59,000 Selling and administrative expenses 36,000 Total costs and expenses 288,000 Pretax income 94,000 Income taxes (40%) 37,600 Net income $ 56,400

Required:

(1) Compute the payback period

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

Reference no: EM13609462

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