Question
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.
Choose Numerator | / | Choose Denominator | = | Payback Period |
? | / | ? | = | Payback Period |
? | ? | = | | |
Compute this machines accounting rate of return, assuming that income is earned evenly throughout each year.
Choose Numerator | / | Choose Denominator | = | Accounting Rate of Return |
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? | / | ? | = | 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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