Question

Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machin at a $483,000 cost with an expected four-year life and a $23.000 salva except for depreciation on the new machine. Additional Information Includes the following. (PV of $1. FV of $1. PVA of $1. and FVA O $1) (Use appropriate factor(s) from the tables provided.) $1,860,000 Expected anmaal sales of new product Expected annual costs of new product Direct materials Direct labor Overhead (excluding straight-line depreciation on new machine) Selling and administrative expenses Income taxes 485,000 679,000 336,000 154,000 341 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 payback period, assuming that cash flows occur evenly throughout each year. 4. Compute this machine's accounting rate of return, assuming that Income is earned evenly throughout each year. 5. Compute the net present value for this machine using a discount rate of 7% and assuming that cash flows occur at each year-end. (Hint Salvage value is a cash Inflow at the end of the asset's life.) Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Compute straight-line depreciation for each year of this new machine's life. Straight-line depreciation 5115,000 Required 2 >

Answer 1

4.	Accounting rate of return
	Annual after-tax net income	/	Annual average investment	=	A.R.R
	60060	/	115,000	=	52.23%
	Annual average investment = (483,000-23,000)/4
	Annual average investment = $ 115,000
5.	Present value of cash-inflows	=	$610,512
	present value of cash-outflow	=	$483,000
	Net Present value		$127,512

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