Factor Company is planning to add a new product to its line. Tomanufacture this product, the company needs to buy a new machine ata $491,000 cost with an expected four-year life and a $15,000salvage value. All sales are for cash, and all costs areout-of-pocket, except for depreciation on the new machine.Additional information includes the following. (FV of $1, PV of $1,FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tablesprovided.) Expected annual sales of new product $ 1,960,000Expected annual costs of new product Direct materials 490,000Direct labor 676,000 Overhead (excluding straight-line depreciationon new machine) 335,000 Selling and administrative expenses 141,000Income taxes 40 % Required:
Compute the net present value for this machine using a discountrate of 6% and assuming that cash flows occur at each year-end.(Hint: Salvage value is a cash inflow at the end of theassetâs life.) (Do not round intermediatecalculations.)
Factor Company is planning to add a new product to its line. Tomanufacture this product, the company needs to buy a new machine ata $491,000 cost with an expected four-year life and a $15,000salvage value. All sales are for cash, and all costs areout-of-pocket, except for depreciation on the new machine.Additional information includes the following. (FV of $1, PV of $1,FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tablesprovided.) Expected annual sales of new product $ 1,960,000Expected annual costs of new product Direct materials 490,000Direct labor 676,000 Overhead (excluding straight-line depreciationon new machine) 335,000 Selling and administrative expenses 141,000Income taxes 40 % Required:
Compute the net present value for this machine using a discountrate of 6% and assuming that cash flows occur at each year-end.(Hint: Salvage value is a cash inflow at the end of theassetâs life.) (Do not round intermediatecalculations.) |
Related questions
xercise 25-6 Net present value LO P3
A new operating system for an existing machine is expected tocost $770,000 and have a useful life of six years. The systemyields an incremental after-tax income of $295,000 each year afterdeducting its straight-line depreciation. The predicted salvagevalue of the system is $12,400.
A machine costs $470,000, has a $30,500 salvage value, isexpected to last eight years, and will generate an after-tax incomeof $70,000 per year after straight-line depreciation.
Assume the company requires a 12% rate of return on itsinvestments. Compute the net present value of each potentialinvestment. (PV of $1, FV of $1, PVA of $1 and FVA of $1)(Use appropriate factor(s) from the tablesprovided.)
A.
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