Cortino company is planning to add a new product to its line. To manufacture thi
ID: 2505006 • Letter: C
Question
Cortino 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 $300,000 cost with an expected four-year life and a $20,000 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.
expected annual sales of new product $1,500,000
expected annual costs of new product
Direct Materials 300,000
Direct Labor 420,000
overhead excluding straight-line depreciation on new maching 210,000
selling and administration expenses 100,000
income taxes 30%
1. Compute straight-line depreciation for each year of this new machine's life. (round to nearest dollar amounts)
2. Determine expected net income and net cash flow for each year of this machine's life. (round to nearest dollar)
3. Compute this machine's payback period, assuming that cash flows occur evenly thoughout each year.
4. compute this machine's accounting rate of return, assuming that income is earned evenly thoughout each year.
5. comput 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 asset's life)
Explanation / Answer
1]Compute straight-line depreciation for each year of this new machine's life. (round to nearest dollar amounts)
Ans:- Straight line depreciation for each year = (Purchase cost
1]Compute straight-line depreciation for each year of this new machine's life. (round to nearest dollar amounts)
Ans:- Straight line depreciation for each year = (Purchase cost