M11-4 Calculating Accounting Rate of Return, Payback Period ILO 11-1, 11-2] Blue

Question

M11-4 Calculating Accounting Rate of Return, Payback Period ILO 11-1, 11-2] Blue Marin Company is considering the purchase of new equipment for its factory Iit wil cost $240,000 and have a $48 000 salvage value in five years. The annual net income trom the equpment s expected to be $28,800, and depreciation is $38,400 per year Calculate Blue Marlin's annual rate of return and payback period for the equ upment (Do not round intermediate calculations. Round your Payback Period to 2 decimal places.) ot Ret Payback Period ILO 11-1, 11-2

Explanation / Answer

Blue Martin Company Annual rate of return      = Net Income after depreciation / net initial Investment      = =(28800-38400) / (240000-48000)      = -0.05 % Payback period      = 6 years & =(1-(201600-192000)/28800)*12      = 6 years & 8 months      = =6.667 Years Calculated from the below details Year Annual Net Income from equipment Cumulative annual net income 1 28800 28800 2 28800 57600 3 28800 86400 4 28800 115200 5 28800 144000 6 28800 172800 7 28800 201600 Net initial Investment in equipment =240000-48000 = 192000

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