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 $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. (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	$	1,890,000
Expected annual costs of new product
Direct materials		455,000
Direct labor		670,000
Overhead (excluding straight-line depreciation on new machine)		335,000
Selling and administrative expenses		155,000
Income taxes		36	%

Required:

1.

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

Answer is complete and correct

Straight-line depreciation

$121,000

2.

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

Answer is complete and correct

Expected Net Income
Revenues
Sales		$1,890,000
Expenses
Direct materials	$455,000
Direct labor	670,000
Overhead excluding straight-line depreciation on new machine	335,000
Selling and administrative expenses	155,000
Straight-line depreciation on new machine	121,000
Total expenses		1,736,000
Income before taxes		154,000
Income tax expense		55,440
Net income		$98,560
Expected Net Cash Flow
Net income		$98,560
Straight-line depreciation on new machine		121,000
Net cash flow		$219,560

3.

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

Answer is not complete

Payback Period
Choose Numerator:	/	Choose Denominator:	=	Payback Period
	/		=	Payback period
			=	0

4.

Compute this machines accounting rate of return, assuming that income is earned evenly throughout each year.

Answer is not complete

Accounting Rate of Return
Choose Numerator:	/	Choose Denominator:	=	Accounting Rate of Return
	/		=	Accounting rate of return
				0

5.

Compute the net present value for this machine using a discount rate of 7% 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.)

Answer is not complete

	Chart Values are Based on:
	n =
	i =
Cash Flow	Select Chart	Amount	x	PV Factor	=	Present Value
Annual cash flow					=	$0
Residual value					=	0
	Net present value