Question
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
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 $377,600 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 151,040 units of the equipments product each year. The expected annual income related to this equipment follows. Sales $ 236,000 Costs Materials, labor, and overhead (except depreciation on new equipment) 83,000 Depreciation on new equipment 62,933 Selling and administrative expenses 23,600 Total costs and expenses 169,533 Pretax income 66,467 Income taxes (30%) 19,940 Net income $ 46,527 If at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
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