Valencia Corporation produces specialized cylinders for automobile engines and has observed an increase
demand in its products. The corporation plans on purchasing a new machine with an invoice price in the
amount of $552,000 from another manufacturer. Shipping charges will amount to $15,000, installation
costs will total $20,000, and testing charges for the new piece of equipment will be $4,000. Hence, the
the total cost of the machine is $591,000.
Company accountants have estimated the machine to have an estimated 6-year economic life; the machine
will be depreciated over a 6-year period using the straight-line method. Salvage value for the machine is
expected to be zero at the end of the 6th year.
Company management requires a 15% Required Rate of Return.
Sales estimates:
Company managers are comfortable with selling 3,200 units of the products produced by this machine in year 1
at a sales price of $190 generating an annual sales revenue in year 1 in the amount of $608,000. Managers expect
sales to grow at a rate of 3% per year.
Costs estimates:
The management accountants expect the following cost estimates including annual increases as follows:
A) Labor and Maintenace Costs:			$ 85,000.00	with an annual increase of:		4.0%
B) Utilities costs in the amount of:			$ 11,500.00	with an annual increase of:		2.0%
C) Supplies costs in the amount of:			$ 22,000.00	with an annual increase of:		3.0%
D) Incremental overhead costs:			$ 6,500.00	with an annual increase of:		5.0%
Question:
Prepare the Table showing the determination of both Net Income and Cash Flows for each of the 6 years.