Question

Capital Budgeting Serial Problem Help Save & Exit Sub Check my word 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 $330.000 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 producr each year. The expected annual income related to this equipment follows 100 11,000 costs Materials, labor, and overhead (except depreciation) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taves (40) Net income Required: (1) Compute the payback period Perback Period I Choose Denominmon Choose Numeraton Payback Period

Answer 1

1) Payback Period = Initial Investment/Annual Cash flow

=330,000/(57,000 + 55,000)

=2.95 Years

2)Accounting Rate of Return = Annual After tax Net income/Initial Investment

=57,000/330,000

=17.27%