Factor Company is planning to add a new product to its line. To manufacture this product, the
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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 a $491,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Sales of new product | $ 1,970,000 |
---|---|
Expenses | |
Materials, labor, and overhead (except depreciation) | 1,502,000 |
DepreciationMachinery | 120,250 |
Selling, general, and administrative expenses | 180,000 |
Required: 1. Determine income and net cash flow for each year of this machines life 2. Compute this machines payback period, assuming that cash flows occur evenly throughout each year. 3. Compute net present value for this machine using a discount rate of 7%.
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