Question

Blue Marlin Company is considering the purchase of new equipment for its factory. It will cost $242,000 and have a $48,400 salvage value in five years. The annual net income from the equipment is expected to be $26,620, and depreciation is $38,720 per year.

Calculate Blue Marlin’s accounting rate of return and payback period for the equipment.

Answer #1

**Blue Marlin’s accounting rate of return and payback
period for the equipment is as follows:**

**1)**Accounting rate of return = Net Income /
Average Investment*100

Average Investment = (Cost + Salvage Value)/2

= ($242,000 + $48,400)/2

= $290,400/2

**= $145,200**

Accounting rate of return = $26,620/ $145,200*100

** = 18.33%**

**Accounting rate of return is 18.33%**

**2)** Payback Period = Initial Investment/ Annual
Cash Inflow

Annual Cash Inflow = Net Income + Depreciation

**=** $26,620 + $38,720

**= $65,340**

**Payback Period = $242,000 / $65,340**

**= 3.70 years**

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 $192,000 with a 12-year life and no salvage
value. It will be depreciated on a straight-line basis. The company
expects to sell 76,800 units of the equipment’s product each year.
The expected annual income related to this equipment
follows.
Sales
$
120,000
Costs
Materials, labor, and overhead (except depreciation on new
equipment)
64,000...

Dobson Corp. is considering the purchase of a new piece of
equipment. The cost savings from the equipment would result in an
annual increase in net income of $57,000. The equipment will have
an initial cost of $502,000 and have an seven year life. There is
no salvage value of the equipment. The hurdle rate is 11%. Ignore
income taxes.
a. Calculate accounting rate of return.
(Round your answer to 2 decimal places.)
b. Calculate payback period. (Round your
answer...

ben is considering the purchase of new piece of equipment. the
cost savings from the equipment would result in an annual increase
in net income of $200000. the equipment will have an initial cost
of $1200000 and have an 8 year life. the salvage value of the
equipment is estimated to be $200000. the hurdle rate is 10%. what
is accounting rate of return? b) what is the payback period? c)
what is the net present value? d) what would...

Question: A corp is considering modernizing its production
facility by investing in new equipment and selling the old
equipment. The following information has been collected on this
investment. Old Equipment New Equipment Cost $80,800 Cost $38,560
Accumulated depreciation $40,400 Estimated useful life 8 years
Remaining life 8 years Salvage value in 8 years $4,592 Current
salvage value $10,600 Annual cash operating costs $29,600 Salvage
value in 8 years $0 Annual cash operating costs $36,000
Depreciation is $10,100 per year for...

XYZ Company is considering the purchase of new equipment that
will cost $130,000. The equipment will save the company $38,000 per
year in cash operating costs. The equipment has an estimated useful
life of five years and a zero expected salvage value. The company's
cost of capital is 10%.
Required:
1) Ignoring income taxes, compute the net present value and
internal rate of return. Round net present value to the nearest
dollar and round internal rate of return to the...

A company is considering purchasing factory equipment that costs
$320,000 and is estimated to have a $20,000 salvage value at the
end of its 6-year useful life. If the equipment is purchased,
annual revenues are expected to be $90,000 and annual operating
expenses including depreciation expense are expected to be $78,000.
The straight-line method of depreciation would be used. The cash
payback period (rounded) on the equipment is T
he cash payback period (rounded) on the equipment is 6.40 years...

Jolly Company is considering investing $ 33,000 in a new
machine. The machine is expected to last five years and to have a
salvage value of $ 8,000. The straight-line method of depreciation
is used. Annual after-tax net cash inflow from the
machine is expected to be $ 7,500. Calculate the annual
depreciation, after-tax net income, average investment, and
accounting or unadjusted rate of return.

Yappy Company is considering a capital investment of $320,000 in
additional equipment. The new equipment is expected to have a
useful life of 8 years with no salvage value. Depreciation is
computed by the straight-line method. During the life of the
investment, annual net income is expected to be 25,000 and cash
inflows are expected to be $65,000. Yappy requires a 10% return on
all new investments.
Instructions: Using each of the methods below, show ALL your
work for calculating...

xercise 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....

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 $377,600 with a 6-year life and no salvage
value. It will be depreciated on a straight-line basis. The company
expects to sell 151,040 units of the equipment’s product each year.
The expected annual income related to this equipment follows.
Sales
$
236,000
Costs
Materials, labor, and overhead (except depreciation on new
equipment)
83,000...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 14 minutes ago

asked 26 minutes ago

asked 37 minutes ago

asked 47 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago