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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

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 $479,000 cost with an expected four-year life and a $11,000 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. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Expected annual sales of new product $ 1,980,000
Expected annual costs of new product
Direct materials 495,000
Direct labor 679,000
Overhead (excluding straight-line depreciation on new machine) 337,000
Selling and administrative expenses 175,000
Income taxes 34 %

Compute straight-line depreciation for each year of this new machines life.

Straight-line depreciation

Determine expected net income and net cash flow for each year of this machines life.

Expected Net Income
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Expenses ? ?
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Expected Net Cash Flow
? ? ?
? ? ?
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Compute this machines payback period, assuming that cash flows occur evenly throughout each year.

Payback Period
Choose Numerator / Choose Denominator = Payback Period
? / ? = Payback Period
? ? = |

Compute this machines 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
? ? = |

Compute the net present value for this machine using a discount rate of 7% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the assets life.) (Do not round intermediate calculations.)

Chart Values are Based on:
n= ?
i= ?
Cash Flow Select Chart Amount X PV Factor = Present Value
Annual cash flow ? ? ? ?
Residual value ? ? ? ?
? n/a n/a ?
? n/a n/a ?
Net Present Value n/a n/a ?

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