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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 $479,000 cost with an expected four-year life and a $11,000 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	$	1,980,000
Expected annual costs of new product
Direct materials		495,000
Direct labor		679,000
Overhead (excluding straight-line depreciation on new machine)		337,000
Selling and administrative expenses		175,000
Income taxes		34	%

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

Straight-line depreciation

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

Expected Net Income
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Expected Net Cash Flow
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Compute this machines payback period, assuming that cash flows occur evenly throughout each year.

Payback Period

Choose Numerator	/	Choose Denominator	=	Payback Period
?	/	?	=	Payback Period
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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
?	/	?	=	Accounting Rate of Return
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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.)

	Chart Values are Based on:
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Cash Flow	Select Chart	Amount	X	PV Factor	=	Present Value
Annual cash flow	?	?		?		?
Residual value	?	?		?		?
	?	n/a		n/a		?
	?	n/a		n/a		?
	Net Present Value	n/a		n/a		?

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