Question

Exercise 24-8 Payback period and accounting rate of return on investment LO P1, P2 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 $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's product each year. The expected annual income related to this equipment follows. $ 150,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses 80,000 20,000 15,000 Total costs and expenses 115,000 Pretax income Income taxes (20%) 35,000 7,000 Net income $ 28,000

Answer 1

Solution:

11 12 13 14 15 Accounting rate of Return Choose Numerator Choose Denominator = Accounting Rate of Return Annual Net Income Initial Investment = Accounting Rate of Return $28,000/ $240,000= 11.67% 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 42 43 44 45 46 47 48 et851 Sheet217 (2) ) Sheet859 Sheet860 Sheet831