Question

B2B 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 $376,000 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 150,400 units of the equipment’s product each year. The expected annual income related to this equipment follows.

Sales	$	235,000
Costs
Materials, labor, and overhead (except depreciation on new equipment)		82,000
Depreciation on new equipment		62,667
Selling and administrative expenses		23,500
Total costs and expenses		168,167
Pretax income		66,833
Income taxes (40%)		26,733
Net income	$	40,100

If at least an 8% 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 provided.)

Answer is complete but not entirely correct.

Chart Values are Based on: n =not attempted 6selected answer correct i =not attempted 8selected answer correct % Select Chart Amount x PV Factor = Present Value Present Value of an Annuity of 1selected answer correct $102,767selected answer correct x 6.3017selected answer incorrect = $647,607 Present value of cash inflowsselected answer correct $647,607 Present value of cash outflowsselected answer correct 376,000selected answer correct Net present value $71,580selected answer incorrect

Can you please show how you are getting the answer

Answer 1

Chart Values are Based on:
n =	6
i =	8%
Select Chart	Amount	x	PV Factor	=	Present Value
Present Value of an Annuity of 1	102767	x	4.6229	=	475082
Present value of cash inflows					475082
Present value of cash outflows					(376000)
Net present value					99082
Workings:
Net income	40100
Add: Depreciation	62667
Annual cash flows	102767
PV factor (PVA of $1)	4.6229	=(1-(1.08)^-6)/0.08