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Dobson Corp. is considering the purchase of a new piece of equipment. The cost savings...

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Accounting

Dobson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income of $50,000. The equipment will have an initial cost of $506,000 and have an seven year life. There is no salvage value of the equipment. The hurdle rate is 13%. Ignore income taxes.

1) Calculate accounting rate of return.

2) Calculate payback period.

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