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 $511,000 cost with an expected four-year life and a $19,000 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.) $1,920,000 Expected annual sales of new product Expected annual costs of new product Direct materials Direct labor Overhead (excluding straight-line depreciation on new machine) Selling and administrative expenses Income taxes 480,000 672,000 338,000 168,000 36% 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 earned evenly throughout each year. 5. Compute the net present value for this machine using a discount rate of 6% 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.) X Answer is not complete. Complete this question by entering your answers in the tabs below. Required 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 $ 122,750 X Required 1 Required 2 > Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Determine expected net income and net cash flow for each year of this machine's life. Expected Net Income Revenues $ 1,920,000 Expenses Direct materials $ 480,000 672,000 338,000 Direct labor Overhead excluding straight-line depreciation on new machine Straight-line depreciation on new machine Selling and administrative expenses OOOOO 122,750 X 168,000 Total expenses Income before taxes 1,780,750 139,250 X 50,130 x 89,120 X Income tax expense OOI Net income $ Expected Net Cash Flow Net income $ Straight-line depreciation on new machine Net cash flow 89,120 122,750 X 211,870 X $ X Answer is not complete. Complete this question by entering your answers in the tabs below. 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 Cost of investment 1 Annual net cash flow = Payback period 2.41 years $ 510,000 17 $ 211,870 Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year. Choose Numerator: Accounting Rate of Return Choose Denominator: Annual average investment $ 264,500 X Annual after-tax net income 1 = Accounting Rate of Return Accounting rate of return 33.69 % $ 89,120 X 1 = x Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Compute the net present value for this machine using a discount rate of 6% 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.) (Do not round intermediate calculations. Amounts to be deducted should be indicated by a minus sign.) Chart Values are Based on: n = 4 % Cash Flow Select Chart Amount PV Factor Present Value 732,244 Annual cash flow $ 3.4561 x = $ Present Value of an Annuity of 1 Present Value of 1 211,870 19,000 Residual value $ x 0.7921 15,050 $ Present value of cash inflows Present value of cash outflows 747,294 (510,000) X 239,201 X Net present value $
