Question

Exercise 24-9 Computing net present value LO P3 B2B Co. is considering the purchase of equipment that would allow the ould allow the company to add a new product to its line. The equipment is expected to cost $372,800 with a 12-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 $ 233,000 Costs Materials, labor, and overhead (except depreciation on new equipment) 82,000 Depreciation on new equipment 31,067 Selling and administrative expenses 23. 300 Total costs and expenses 136,367 Pretax income 96,633 Income taxes (208) 19, 327 Bet income $ 77.306 If at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1. FV of $1. PVA of S1, and FVA of $1) (Use appropriate factor(s) from the tables provided) Chart Values are Based on: Select Chart Amount K PV Factor - Present Value Net present value

Answer 1

WORKING NOTES: 1
	CALCULATION OF CASH FLOW PER YEAR
	Net Income	$               77,306
	Add: Depreciation expenses	$               31,067
	Cash Flow per year	$           1,08,373
WORKING NOTES: 2
	CALCULATION OF CUMULATIVE VALUE OF $ 1 @ 10%
		PVF of $ 1 @ 10%
	Year 1	0.9091
	Year 2	0.8264
	Year 3	0.7513
	Year 4	0.6830
	Year 5	0.6209
	Year 6	0.5645
	Year 7	0.5132
	Year 8	0.4665
	Year 9	0.4241
	Year 10	0.3855
	Total	6.1446
SOLUTION :
	Chart value are based on :
	N=	12 Years
	I=	10%
	Select Chart	Amount	X	PV Factor	=	Present Value
	Cash Flow per year	$     1,08,373.00	X	$                   6.14	=	$                    6,65,905
	Less: Expeted Cost					$                    3,72,800
	Net Present Value					$                    2,93,105