Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $720,000 cost with an expected four-year life and a $44,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine. Additional information includes the following. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round PV factor value to 4 decimal places.) S 2.440,000 Expected annual sales of new product Expected annual costs of new product 504,000 696,000 576,000 184,000 30% Direct materials Direct labor Overhead (excluding straight-line depreciation on new machine) Selling and administrative expenses Income taxes Required: 1. Compute straight-line depreciation for each year of this new machine's life. 2. Determine expected net income and net cash flow for each year of this machine's life. 3. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 4. Compute this machine's accounting rate of return, assuming that income is eamed evenly throughout each year. 5. Compute the net present value for this machine using a discount rate of 3 % 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.) Raquired 1 Required 2 Required 3 Required 4 Required 5 Compute straight-line depreciation for each year of this new machine's life. Straight-line depreciation Required 1 Required 2 Required 4 Required 5 Required 3 Determine expected net income and net cash flow for each year of this machine's life. Expected Net Income Revenues Expenses Expected Net Cash Flow Required 1 Required 2 Required 3 Required 4 Required 5 Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. Payback Period Choose Numerator: Choose Denominator: Payback Period Payback period - Required 1 Required 3 Required 5 Required 2 Required 4 Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year. Accounting Rate of Return Choose Numerator Choose Denominator: Accounting Rate of Return Accounting rate of return Required 1 Required 2 Required 3 Required 4 Required 5 Compute the net present value for this machine using a discount rate of 3 % and assuming that cash flows occur att each vear- end. (Hint: Salvage value is a cash inflow at the end of the asset's life.) (Do not round intermediate calculations. Amounts to be deducted should be indicated by a minus sign.) Chart Values are Based on: Amount Cash Flow Select Chart PV Factor Present Value Annual cash fiow Residual value Net present value
