Costs in beginning Work in Process-Conversion: $48,850. Costs incurred in Februa
ID: 2799369 • Letter: C
Question
Costs in beginning Work in Process-Conversion: $48,850. Costs incurred in February Direct Materials: $287,000. Costs incurred in February-Conversion:$599,150 Provide the following: Equivalent units of production for both materials and conversion Cost per equivalent unit for both materials and conversion company is considering purchasing a machine for $85,000. The machine is expected to generate a net after-tax income of $11,250 8. A per year. Depreciation expense would be $8,500. What is the payback period for this machine? A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. It will be depreciated using the straight-line method. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. What is the net present value of the cash flows from the investment, discounted at 12%? 9.Explanation / Answer
Ans. 8 Calculation of pay back period: Pay back period means how much period/year to be take for recovering original cost.
Cost of Machinery is $85000
Calculation of annual cash flow
Net profit after tax $11250
Dep. Exp. $8500
Net cash flow $19750
Pay back period = $19750+$19750+$19750+$19750+(85000-79000)/$19750 = 4+6000/19750 = 4+.30
Pay back period = 4.30 years
Ans. 9 Calculation of Net Present value of cash flow
Present value of cash outflow = $1800000
Calculation of Present value cash inflow
Net income after tax = $200000
Add: Depreciation(1800000-30000)/3 = $590000
Annual Net Cash flow = $790000
Calculation of Present value of Annual cash flow for 3years = $790000XCumulative PV @12%+ $30000XPV @12% end of 3rd yr
= $790000X2.4018+$30000X.712 =$1897422+$21360= $1918782
Net present value of cash flow = PV of cash inflow-PV of cash outflow
= $1918782-$1800000 = $118782
Note: $30000 is Salvage value of machinery means we can recover to sale the machinery as a Scrap of machinery $30000 at the end of 3rd yr.
2. Profit after tax is $200000 , for annual cash income we have to add depreciation amt in PAT
Depreciation calculation
cost of machinery is $1800000
Salvage value $30000
Life of machinery is 3Years
Dep. = $1800000-30000/3 = $590000