B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $312,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product - $195,000 Expenses: Materials, labor, and overhead (except depreciation) - 104,000 Depreciation-Equipment - 26,000 Selling, general, and administrative expenses - 19,500 Income $45,500 - A) Compute the annual net cash flow. B) Compute the payback period. C) Compute the accounting rate of return for this equipment.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
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B2B Company is considering the purchase of equipment that would
allow the company to add a new product to its line. The equipment costs
$312,000 and has a 12-year life and no salvage value. The expected
annual income for each year from this equipment follows.
Sales of new product - $195,000
Expenses:
Materials, labor, and overhead (except depreciation) - 104,000
Depreciation-Equipment - 26,000
Selling, general, and administrative expenses - 19,500
Income $45,500
-
A) Compute the annual net cash flow.
B) Compute the payback period.
C) Compute the accounting rate of return for this equipment.
Transcribed Image Text:B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $312,000 and has a 12-year life and no salvage value. The expected annual income for each year from this equipment follows. Sales of new product - $195,000 Expenses: Materials, labor, and overhead (except depreciation) - 104,000 Depreciation-Equipment - 26,000 Selling, general, and administrative expenses - 19,500 Income $45,500 - A) Compute the annual net cash flow. B) Compute the payback period. C) Compute the accounting rate of return for this equipment.
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