Question
Exercise 24-9 Computing net present value LO P3 B2B Co. is considering the purchase of equipment that would allow the company to add a new
Exercise 24-9 Computing net present value LO P3
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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Sales | $ | 225,000 | |
Costs | |||
Materials, labor, and overhead (except depreciation on new equipment) | 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 | |
If at least an 8% return on this investment must be earned, compute the net present value of this investment.
Exercise 24-9 Computing net present value LO P3
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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Sales | $ | 225,000 | |
Costs | |||
Materials, labor, and overhead (except depreciation on new equipment) | 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 | |
If at least an 8% return on this investment must be earned, compute the net present value of this investment.
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Net present value |
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