Solved: Compute the annual rate of return, Accounting Basics

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Compute the annual rate of return

Question:

Bonita Company is considering purchasing new equipment for $350,000. The equipment has a 5-year useful life, and depreciation would be $70,000 (assuming straight-line depreciation and zero salvage value). The purchase of the equipment should increase net income by $40,000 each year for 5 years. (a) Compute the annual rate of return. (b) Compute the cash payback period.

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Accounting Basics: Compute the annual rate of return

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