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 $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 equipments product each year. The expected annual income related to this equipment follows. If at least an 8% return on this investment must be earned, compute the net present value. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) |
Sales | $ | 225,000 | |
Costs | |||
Materials, labor, and overhead (except depreciation) | 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 | |
| | ||
|
Compute the net present value of this investment. |
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. If at least an 8% return on this investment must be earned, compute the net present value. (FV of $1. PV of $1, FVA of $1 and PVA of S1) (Use appropriate factor(s) from the tables provided.) Sales Costs 5 225,000 Materials, labor, and overhead (except depreciation) 120,000 30,000 22,500 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income 172.500 52,500 15.750 Income taxes (30%) Net income S 36,750 Compute the net present value of this investment. Chart Values are Based on: 12 89% elect Chart Amount x PV Factor | Present Value resent Value of an Annuity of 1 Present value of cash inflows Present value of cash outflows Net present value
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