B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line.

B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows.

Sales	$	225,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)		120,000
Depreciation on new equipment		30,000
Selling and administrative expenses		22,500
Total costs and expenses		172,500
Pretax income		52,500
Income taxes (30%)		15,750
Net income	$	36,750

1.	Compute the payback period.