Lakeside Inc. is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $7,500 per month. The new equipment will have a five-year life and cost $320,000, with an estimated salvage value of $20,000. Lakeside's cost of capital is 12%. Lakeside Inc. uses a straight-line depreciation method. Required: Calculate the payback period and the accounting rate of return for the new production equipment. (Round your answers to 2 decimal places.)

Lakeside Inc. is considering replacing old production equipment with state-of-the-art technology that will allow production cost savings of $7,500 per month. The new equipment will have a five-year life and cost $320,000, with an estimated salvage value of $20,000. Lakeside's cost of capital is 12%. Lakeside Inc. uses a straight-line depreciation method. Required: Calculate the payback period and the accounting rate of return for the new production equipment. (Round your answers to 2 decimal places.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 18E

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