Capital Budgeting Assignment Zoom Zoom Scooter company is planning to add a new product to its line. There are two choices. To manufacture product SB1, the company needs to buy a new machine at a $519,000 cost with an expected four-year life and a $15,000 salvage value. All sales are for cash, and all cost are out-of-pocket, except for depreciation on the new machine. Additional information includes: Expected annual sales of new product Expected annual costs of new product Direct materials Direct labor Overhead (excluding straight-line depreciation on new machine) Selling and administrative expenses Income taxes $1,960,000 460,000 678,000 338.000 173,000 30% To manufacture product SB2, the company needs to buy a new machine at a $511,000 cost with an expected four-year life and a $15,000 salvage value. All sales are for cash, and all cost are out-of-pocket, except for depreciation on the new machine. Additional information includes: Expected annual sales of new product Expected annual costs of new product Direct materials Direct labor Overhead (excluding straight-line depreciation on new machine) Selling and administrative expenses Income taxes $1,850,000 470,000 671,000 336,000 161,000 34% 1. Compute straight-line depreciation for each year of each new machine's life. 2. Determine expected net income and net cash flow for each year of each machine's life. 3. Compute each machine's payback period, assuming that cash flows occur evenly throughout each year. What are the strengths and limitations of this method? 4. Compute each machine's accounting rate of return, assuming that income is earned evenly throughout each year. What are the strengths and limitations of this method? 5. Compute the net present value for each 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 asset's life.) What are the strengths and limitations of this method? 6. Which product line should the company go with? Why did you make this decision? (Be sure to explain your reasoning and refer to the data)