Acc423-Santana Rey is considering the purchase of equipment for Business Solutions that would allow… 1 answer below »

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 $300,000 and to have a six-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.

Sales

375,000

Costs

Materials, labor and overhead (except depreciation)

200,000

Depreciation on new equipment

50,000

Selling and administrative expenses

37,500

Total costs and expenses

287,500

Pretax income

87,500

Income taxes (30%)

26,250

Net income

61,250

Required:

Compute the (1) payback period and (2) accounting rate of return for this equipment (Record answers as percents, rounded to one decimal).

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