This is all 1 Problem. 1t.00 points Problem 24-1A Computation of payback perlod,

Question

This is all 1 Problem.

1t.00 points Problem 24-1A Computation of payback perlod, accounting rate of return, and net present value LO P1, P2, P3 Factor 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 $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-pocket, except for depreciation on the new machine. Additional information includes the following. (FV of $1 PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) $1,860000 475.000 673.000 335000 Expected annual sales of new product Expected annual coats of new product Direetmeterials Directlabor Overhead (excduding straight-Hine depreciaton on new machine Seling and administative expenses 161,000 Income taxe8 38%

Explanation / Answer

Annual Net income: Sales 1,960,000 Less: Cost Material 475000 Labour 673000 OH 335000 Depreciation on machine 119000 Selling expense 161000 Net Income before tax 197000 Less: Tax @ 38% 74860 Net Income after tax 122140 Annual Cash inflows: Net Income before tax 197000 Less: Tax @ 38% 74860 Net Income after tax 122140 Add: Depreciation 119000 Annual Cash inflows: 241140 Req 1: Payback period: Initial Investmenet   / Annual cash inflows = Payback period 495,000    / 241,140     = 2.05 years Req 2: Net Income after Tax/ Average Investment Accounts rate of return 122,140    / 495,000   = 24.67% Req 3: n =4 years t =8% Cashflows Select chart Amount * PV factor = Present value Annual Cashflow Present Annuity table 241140* 3.312 798655.7 Residual Present Factor table 19000* 0.735 13965 Total Present value 812621 Less: Investment 495,000 Net present value 317,621

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