Blue Marlin Company is considering the purchase of new equipment for its factory

Question

Blue Marlin Company is considering the purchase of new equipment for its factory. It will cost $241,000 and have a $48,200 salvage value in five years. The annual net income from the equipment is expected to be $26,510, and depreciation is $38,560 per year Calculate Blue Marlin's annual rate of return and payback period for the equipment. (Do not round intermediate calculations. Round your Payback Period to 2 decimal places.) Answer is complete but not entirely correct. Annual Rate of Return Payback Period 9.10 x Years

Explanation / Answer

Annual rate of return=Annual net income/Equipment cost = 26510/241000= 11% Payback period=241000/(26510+38560)= 3.70 years

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