question 4

Exercise 24-6 (Algo) Payback period, equal cash flows, and accounting rate of return LO P1, P2

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
DepreciationEquipment	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.

Complete this question by entering your answers in the tabs below.

Required A

Required B

Required C

Compute the annual net cash flow.

a.

Annual Results from Investment	Income	Cash Flow
Sales of new product	$195,000
Expenses
Materials, labor, and overhead (except depreciation)	104,000
DepreciationEquipment	26,000
Selling, general, and administrative expenses	19,500
Income	$45,500
Net cash flow		$0

b.

Compute the payback period.

Payback Period
Numerator:	/	Denominator:
	/		=	Payback period
			=	0

c.

Compute the accounting rate of return for this equipment.

Accounting Rate of Return
Numerator:	/	Denominator:
	/		=	Accounting rate of return
				0