Check my wo Factor Company is planning to add a a $495,000 cost with an expected
ID: 2437033 • Letter: C
Question
Check my wo Factor Company is planning to add a a $495,000 cost with an expected four-year life and a $19,000 salvage value, All sales are for cash, and all costs are out-of new product to its line. To manufacture this product, the company needs to buy a new machine at pocket depreclation on the new machine. Additional information includes the following.(PV of S1, FV of Si, PVA of $1, and EVA of $) (Use appropriate factor(s) from the tables provided.) Expected annual sales of new product Expected annual costs of ner product $1,980, 000 Direct materials Direct labor Overhead (excluding straight-1ine depreciation on new machine) Selling and administrative expenses Income taxes 460,000 675,000 338,000 165,000 346 Required: 1. Compute straight-line depreciation for each year of this new hachine's life. 2. Determine expected net income and net cash fiow for each year of this machine's life. 3. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year s machine's accounting rate of return, assuming that income is earned evenly throughout each year 5. Compute the net present value for this machine using a disc ount rate of 6% and assuming that cash lows occur at each year end Hint Salvage value is a cash inflow at the end of the asset's life.) Complete this question by entering your answers in the tabs below. K Prev 9 of 13 Next >Explanation / Answer
1)Depreciation= [cost-salvage ]/useful life
=[495000-19000]/4
= 119000
2)
cash flow = net income +depreciation
= 147180+119000
= 266180
3)payback period=Initial investment/ cash flow
= 519000/266180
= 1.95 years
4)Accountig rate of return = Net income /average investment
= 147180/257000
= .5727 or57.27%
**average investment [ 495000+19000]/2=257000
5)
n=4
i=6%
Present value of annuity =[PVA 6%,4 *Annual cash flow]
= [3.46511*266180]
= 922342.98
present value of residual value =PVF 6%,4*Salvage
= ..79209*19000
= 15049.71
Total present value of cash inflow =937392.69
present value of cash outflow =(495000)
net present value = 442392.69
Net sales 1980000 less: Direct material 460000 Direct labor 675000 overhead 338000 selling and administration expense 165000 depreciation 119000 Total expense 1757000 Income before tax 223000 less:Tax [ 91000*.34] (75820) Net income 147180