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Exercise 24-8 Payback period and accounting rate of return on investment LO P1, P2 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 $120,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 48,000 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 75,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (20%) Net income 40,000 10,000 7,500 57,500 17,500 3,500 $ 14,000 1. Compute the payback period. 2. Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the payback period. Choose Numerator: Payback Period 1 Choose Denominator: / Annual net cash flow Cost of investment = Payback Period = Payback period 0 = Exercise 24-8 Payback period and accounting rate of return on investment LO P1, P2 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 $120,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 48,000 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 75,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (20%) Net income 40,000 10,000 7,500 57,500 17,500 3,500 $ 14,000 1. Compute the payback period. 2. Compute the accounting rate of return for this equipment. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the accounting rate of return for this equipment. Accounting Rate of Return Choose Denominator: Annual after-tax net income Choose Numerator: Cost of goods sold = 1 Accounting Rate of Return Accounting rate of return 0

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