Factor Company ls planning to add a new product to its line. To manufacture this

Question

Factor Company ls planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $499,000 cost with an expected four-year life and a $15,000 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. (PV of $1, EV of $1, PVA of $1, and FVA of $1 (Use appropriate factor(s) from the tables provided.) Expedted annual sales of new product Expected annual costs of new product $1.950,000 Direct materials Direct labor Overhead (excluding straight-line depreciation on new machine) Selling and administrative expenses Income taxes 495,000 675,000 337,000 180,000 32t Required: 1. Compute straight-line depreciation for each year of this new machine's life. 2. Determine expected net income and net cash flow for each year of this machine's life. 3. Compute this machine's paybac 4. Compute this machine's 5 Compute the net present value for this machine using a discount rate of 6% and assuming that cash Hint Salvage value is a cash inflow at the end of the asset's life.) k period, assuming that cash flows occur evenly throughout each year accounting rate of return, assuming that income is earned evenly throughout each year. ows occur at each year-end. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required S Compute straight-line depreciation for each year of this new machine's life.

Explanation / Answer

Ans 1 Straight line depreciation 121000 (499000-15000)/4 ans 2 Revenue Sales $1,950,000 Expenses Direct Material $495,000 Direct labor 675000 Overhead exc depreciation 337000 Selling & administrative exp 180000 Straight line depreciation on new machine 121000 Total expenss $1,808,000 Income before taxes $142,000 Less: income taxes (32%) $45,440 Net Income $96,560 Add; Straight line depreciation on new machine 121000 Net cash flow $217,560 ans 3 Numerator Denominator Payback period Cost of Investment Annula Net cash flow 499000 $217,560 2.29 years ans 4 Numerator Denominator Annual after tax net income Annual average investmentr ARR $96,560 257000 37.57 % Annual average investmentr 257000 (499000+15000)/2 ans 5 n 4 i 6% Cash flow Select chart Amt PV factor PV Annual cash flow PV of Annuity of 1 $217,560 4.9173 $1,069,808 Residual value PV od $1 15000 0.705 $10,575 PV of cash inlfows $1,080,383 Present value of cash outflow 499000 Net present value $581,383

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