Lexington Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $500,000 and have an 8-year life.There is no salvage value of the equipment.The hurdle rate is 8%.Ignore income taxes.Calculate the following:
a.Accounting rate of return
b.Payback period

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The Answer of Lexington Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $100,000.The equipment will have an initial cost of $500,000 and have an 8-year life.There is no salvage value of the equipment.The hurdle rate is 8%.Ignore income taxes.Calculate the following:
a.Accounting rate of return
b.Payback period