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4.B2B Co. is considering the purchase of equipment that would allow the company to add a new product to itsline. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will bedepreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s producteach year. The expected annual income related to this equipment follows.Sales$225,000 CostsMaterials, labor, and overhead (except depreciation onnew equipment)120,000 Depreciation on new equipment30,000 Selling and administrative expenses22,500 Total costs and expenses172,500 Pretax income52,500 Income taxes (30%)15,750 Net income$36,750 1.Compute the payback period.2.Compute the accounting rate of return for this equipment.
Accounting Rate of ReturnChoose Numerator:/Choose Denominator:=Accounting Rate of ReturnAnnual after-tax net income/Annual average investment=Accounting rate of return$36,750/ $180,000= 20.42%5.B2B Co. is considering the purchase of equipment that would allow the company to add a new product to itsline. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will bedepreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s producteach year. The expected annual income related to this equipment follows. If at least an 8% return on thisinvestment must be earned, compute the net present value. (FV of $1, PV of $1, FVA of $1and PVA of$1) (Use appropriate factor(s) from the tables provided.)