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 $503,000 cost with an expected four-year life and a $20,000 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	$ 1,980,000
Expenses
Materials, labor, and overhead (except depreciation)	1,473,000
DepreciationMachinery	120,750
Selling, general, and administrative expenses	151,000

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%.

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

Annual amounts	Income	Cash Flow
Sales of new product	$1,980,000
Expenses
Materials, labor, and overhead (except depreciation)	1,473,000
DepreciationMachinery	120,750
Selling, general, and administrative expenses	151,000
Income	$235,250
Net cash flow

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

Payback Period
Numerator:	/	Denominator:
	/		=	Payback Period
			=

Compute net present value for this machine using a discount rate of 7%. (Do not round intermediate calculations. Negative amounts should be entered with a minus sign. Round your present value factor to 4 decimals and final answers to the nearest whole dollar.)

	Net Cash Flows	x	Present Value at 7%	=	Present Value of Net Cash Flows
Years 1-4				=
Salvage value, year 4				=
Total				=
				=
Net present value				=