Question
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
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 8-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 47,200 Selling and administrative expenses 23,600 Total costs and expenses 153,800 Pretax income 82,200 Income taxes (20%) 16,440 Net income $ 65,760
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