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 $220,000 and to have a five-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...................................................................................................377,000
Costs Materials, labor, and overhead (except depreciation).............199,000
Depreciation on new equipment..................................................44,000
Selling and administrative expenses..........................................33,500
Total costs and expenses...................................................................276,500
Pretax income........................................................................................100,500
Income taxes (35%)..............................................................................35,175
Net income..............................................................................................65,325
Required: (1) Compute the payback period. (Round your answer to 1 decimal place.) Payback period ? years (2) Compute the accounting rate of return for this equipment. Accounting rate of return ? %