K2B Co. is considering the purchase of equipment that would allow the company to

Question

K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $371,200 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 10% return on this investment. The company expects to sell 148,480 units of the equipments product each year. The expected annual income related to this equipment follows. Sales $232,000. Costs: Materials, labor, and overhead (except depreciation) 81,000. Depreciation on new equipment 61,867. Selling and administrative expenses 23,200. Total costs and expenses 166,067. Pretax income 65,933. Income taxes (30%) 19,780. Net income $46,153. Compute the net present value of this investment.

Explanation / Answer

Hi, If you like my answer rate me first...that way only I can earn points. Thanks Net Income Each year = $46,153 Future value = Salvage value = 0 So NPV = -$371200 + $46,153/1.10 + ...+ $46,153/1.10^6 = -$1,71,091.65

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.