Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I just need help finding the 2 values marked wrong at the bottom. Factor Company is planning to add a new product to its line.

I just need help finding the 2 values marked wrong at the bottom.

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 $515,000 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.

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

Compute straight-line depreciation for each year of this new machine's life. Straight-line depreciation $ 124,000 Determine expected net income and net cash flow for each year of this machine's life. $ 1,910,000 Expected Net Income Revenues Sales Expenses Direct labor Direct materials $ 675,000 465,000 Selling and administrative expenses Straight-line depreciation on new machine Overhead excluding straight-line depreciation on new machine 163,000 124,000 336,000 1,763,000 147,000 58,800 88,200 $ Total expenses Income before taxes Income tax expense Net income Expected Net Cash Flow Net income Straight-line depreciation on new machine Net cash flow $ 88,200 124,000 212,200 $ Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. Payback Period Choose Denominator: Choose Numerator: Payback Period Cost of investment 7 Annual net cash flow = Payback period $ 515,000 $ 212,200 II 2.43 years Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year. Choose Numerator: Annual after-tax net income $ 88,200 Accounting Rate of Return Choose Denominator: Annual average investment $ 267,000 / Accounting Rate of Return Accounting rate of return 33.03 % Required 1 Required 2 Required 3 Required 4 Required 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 asset's life.) (Do not round intermediate calculations. Amounts to be deducted should be indicated by a minus sign.) Chart Values are Based on: 4 8 % Cash Flow Select Chart Amount PV Factor Present Value Annual cash flow 0 X 3.3121 - 0 Present Value of an Annuity of 1 Present Value of 1 A A Residual value 0 X 0.7350 0 Present value of cash inflows Present value of cash outflows Net present value

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions