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 $495,000 cost with an expected four-year life and a $23,000 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	$	1,910,000
Expected annual costs of new product
Direct materials		480,000
Direct labor		674,000
Overhead (excluding straight-line depreciation on new machine)		335,000
Selling and administrative expenses		149,000
Income taxes		38	%

Required:

1.

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

Straight-line depreciation

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

Expected Net Income
Revenues
Sales
Expenses
Direct labor
Direct materials
Overhead excluding straight-line depreciation on new machine
Selling and administrative expenses
Straight-line depreciation on new machine
		0
Income before taxes
Income tax expense
Net income
Expected Net Cash Flow
Net income
Straight-line depreciation on new machine
Net cash flow

3.

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

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
Cost of investment	/	Annual net cash flow	=	Payback period
			=	0

4.

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
Annual after-tax net income	/	Annual average investment	=	Accounting rate of return
				0

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 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	Present Value of an Annuity of 1				=	$0
Residual value	Present Value of 1				=	0
	Present value of cash inflows
		Present value of cash outflows
		Net present value