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Exercise 26-9 Computing net present value LO P3 B2B Co. is considering the purchase of equipment that would allow the company to add a new
Exercise 26-9 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 $368,000 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 147,200 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 230,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (208) Net income 81,000 61,333 23,000 165, 333 64,667 12,933 51,734 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.) X Answer is complete but not entirely correct. Chart Values are Based on: n = 6 10% Amount Present Value Select Chart Present Value of an Annuity of 1 PV Factor 4.3556 x = $ 51,734 x x 225,333 Present value of cash inflows Present value of cash outflows Net present value 225,333 (368,000) (42,685) X $
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