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Santana Rey is considering the purchase of equipment for Business Solutions that would...

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Accounting

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Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $336,000 and to have a seven-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 380,000 Sales Costs Materials, labor, and overhead (except depreciation) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (35%) Net income 194,000 48,000 31,500 273,500 106,500 37,275 $ 69,225 Required: (1) Compute the payback period. = Choose Numerator: 1 Cost of investment $ 336,000 1 Payback Period Choose Denominator: Annual net cash flow $ 117,225 = Payback Period Payback period = 2.9 years

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