Harwell Printing Co. is considering the purchase of new electronic printing equipment. It would allow Harwell to

Question:

Harwell Printing Co. is considering the purchase of new electronic printing equipment. It would allow Harwell to increase its net income by $45,000 per year. Other information about this pro-posed project follows:

Initial investment .....$300,000

Useful life ........ 5 years

Salvage value .......$100,000

Required:

Calculate and evaluate the following for Harwell:

1. Accounting rate of return.

2. Payback period.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...