Question

Exercise 11-9 Computing net present value LO P3 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 $384,000 with a 10-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 153,600 units of the equipment's product each year. The expected annual income related to this equipment follows Sales Costs $ 240,000 Materials, labor, and overhead (except depreciation on new equipment) 84,000 38,400 24,000 146,400 93,600 28,080 $ 65,520 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (30%) Net income 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 provided.) Chart Values are Based on: n= Select Chart Amount X PVFactorPresent Value Net present value

Answer 1

Solution:

Cash Inflows = Net Income + Depreciation = $65,520 + $38,400 = $103,920

Chart Values are based on:
n=	10
i=	9%
Select Chart	Amount	*	PV Factor	=	Present Value
PVA of $1	$1,03,920		6.41766		$6,66,923
Present Value of Cash Inflows					$6,66,923
Less: Initial Investment in Equipment					$3,84,000
Net Present Value					$2,82,923

Note:

Since PVA of $1 table not given in question, PV factor is rounded 5 decimal places and final answer is rounded to 0 decimal places.