Exercise 25-9 Computing net present value LO P3 82B Co. is considering the purch

Question

Exercise 25-9 Computing net present value LO P3 82B 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 $372,800 with a 8-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 149,120 units of the equipment's product each year. The expected annual income related to this equipment follows. Sales Costs $ 233,000 Materials, labor, and overhead (except depreciation on new equipment) 82,000 46,600 23,300 151,900 81,100 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (308) Net income $ 56,770 If at least an 9% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1 and FVA of $1) (Use appropriate factor(s) from the tables provlded.) t Values are Based on: lect Chart x PV Factor Present Value Net present value

Explanation / Answer

Chart Values are Based on: n = 8 i = 9% Select Chart Amount x PV Factor = Present Value Present Value of an Annuity of 1 $103,370 x 5.5348 = $572,132.28 Present value of cash inflows 572132 Present value of cash outflows -372,800 Net present value $199,332

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