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 $507,000 cost with an expected four-year life and a $15,000 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.) Expected annual sales of new product $ 1,860,000 Expected annual costs of new product Direct materials 460,000 Direct labor 680,000 Overhead (excluding straight-line depreciation on new machine) 337,000 Selling and administrative expenses 159,000 Income taxes 32 %

Required: 1. Compute straight-line depreciation for each year of this new machines life. 2. Determine expected net income and net cash flow for each year of this machines life.

3. Compute this machines payback period, assuming that cash flows occur evenly throughout each year.

4. Compute this machines 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 8% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the assets life.)