A machine costs $300,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has a 12-year service life and a $60,000 salvage value, and it uses straight-line depreciation. Compute this machineâs accounting rate of return.
Accounting Rate of Return Choose Numerator: / Choose Denominator: = Accounting Rate of Return / = Accounting rate of return 0
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 $216,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 86,400 units of the equipmentâs product each year. The expected annual income related to this equipment follows.
Sales $ 135,000 Costs Materials, labor, and overhead (except depreciation on new equipment) 72,000 Depreciation on new equipment 18,000 Selling and administrative expenses 13,500 Total costs and expenses 103,500 Pretax income 31,500 Income taxes (40%) 12,600 Net income $ 18,900
1. Compute the payback period.
2. Compute the accounting rate of return for this equipment.
Payback Period Choose Numerator: / Choose Denominator: = Payback Period / = Payback period = 0
Accounting Rate of Return Choose Numerator: / Choose Denominator: = Accounting Rate of Return / = Accounting rate of return 0
A machine costs $300,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has a 12-year service life and a $60,000 salvage value, and it uses straight-line depreciation. Compute this machineâs accounting rate of return.
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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 $216,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 86,400 units of the equipmentâs product each year. The expected annual income related to this equipment follows.
| Sales | $ | 135,000 | |
| Costs | |||
| Materials, labor, and overhead (except depreciation on new equipment) | 72,000 | ||
| Depreciation on new equipment | 18,000 | ||
| Selling and administrative expenses | 13,500 | ||
| Total costs and expenses | 103,500 | ||
| Pretax income | 31,500 | ||
| Income taxes (40%) | 12,600 | ||
| Net income | $ | 18,900 | |
1. Compute the payback period.
2. Compute the accounting rate of return for this equipment.
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Related questions
Project A requires a $305,000 initial investment for newmachinery with a five-year life and a salvage value of $41,500. Thecompany uses straight-line depreciation. Project A is expected toyield annual net income of $22,800 per year for the next fiveyears. |
| Compute Project A's payback period.
Project A requires a $385,000 initial investment for newmachinery with a five-year life and a salvage value of $33,000. Thecompany uses straight-line depreciation. Project A is expected toyield annual net income of $24,700 per year for the next fiveyears. Compute Project Aâs accounting rate of return.
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B2B Co. is considering the purchase of equipment that wouldallow the company to add a new product to its line. The equipmentis expected to cost $240,000 with a 12-year life and no salvagevalue. It will be depreciated on a straight-line basis. The companyexpects to sell 96,000 units of the equipmentâs product each year.The expected annual income related to this equipment follows. |
| Sales | $ | 150,000 | |
| Costs | |||
| Materials, labor, and overhead (exceptdepreciation) | 80,000 | ||
| Depreciation on new equipment | 20,000 | ||
| Sellingand administrative expenses | 15,000 | ||
| Total costs andexpenses | 115,000 | ||
| Pretax income | 35,000 | ||
| Income taxes(20%) | 7,000 | ||
| Net income | $ | 28,000 | |
Adria Lopez is considering the purchase of equipment for Success Systems that would allow the company to add a new product to its coputer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It will be depreciated on a striaght-line basis. Success Systems expects to sell 100 unit of the equipment's product each year. The expected annual income related to this equipment follows.
Sales ...................................................................................$375,000
Costs
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
Required: compute the (1) payback period and (2) accounting rate of return for this equipment. Record answers as percents, rounded to one decimal.
Please help me figure out the TABLES
Cash Flow Analysis for Proposed Equipment Investment
| Business Solutions' | ||||
| Cash Flow Analysis - Equipment Investment | ||||
| Expected Accrual Figures | Expected Net Cash Flows | |||
| Annual Sales | ||||
| Costs | ||||
| Materials, labor and overhead (no depreciation) | ||||
| Depreciation of new equipment | ||||
| Selling and Administrative Expenses | ||||
| Pretax Income | ||||
| Income tax | ||||
| Net Income | ||||
| Annual Net Cash Flows | ||||
7.1
As computed in table 14 with the data from the cash flow analysis in table 13: the payback period (PBP) for this equipment investment would be _____years.
The accounting rate of return (ARR) on this equipment investment would be _____%.
Payback Period and Accounting Rate of Return Calculations
| PBP= | |||||
| ARR= | |||||
