13.

Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $519,000 cost with an expected four-year life and a $23,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Expected annual sales of new product	$	1,840,000
Expected annual costs of new product
Direct materials		460,000
Direct labor		677,000
Overhead (excluding straight-line depreciation on new machine)		336,000
Selling and administrative expenses		142,000
Income taxes		32	%

Required: 1. Compute straight-line depreciation for each year of this new machines life. 2. Determine expected net income and net cash flow for each year of this machines life. 3. Compute this machines payback period, assuming that cash flows occur evenly throughout each year. 4. Compute this machines accounting rate of return, assuming that income is earned evenly throughout each year. 5. Compute the net present value for this machine using a discount rate of 6% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the assets life.)

Required 1

Compute straight-line depreciation for each year of this new machines life.

Straight-line depreciation

.

Required 2

Determine expected net income and net cash flow for each year of this machines life.

Expected Net Income
Revenues
Expenses
Expected Net Cash Flow

Required 3

Compute this machines payback period, assuming that cash flows occur evenly throughout each year.

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
	/		=	Payback period
			=

Required 4

Compute this machines accounting rate of return, assuming that income is earned evenly throughout each year.

Accounting Rate of Return
Choose Numerator:	/	Choose Denominator:	=	Accounting Rate of Return
	/		=	Accounting rate of return

Required 5

Compute the net present value for this machine using a discount rate of 6% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the assets life.) (Do not round intermediate calculations.)

	Chart Values are Based on:
	n =
	i =
Cash Flow	Select Chart	Amount	x	PV Factor	=	Present Value
Annual cash flow					=
Residual value					=
	Net present value