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 $377,600 with a 6-year life and no salvage
value. It will be depreciated on a straight-line basis. The company
expects to sell 151,040 units of the equipment’s product each year.
The expected annual income related to this equipment
follows.
Sales | $ | 236,000 | |
Costs | |||
Materials, labor, and overhead (except depreciation on new equipment) | 83,000 | ||
Depreciation on new equipment | 62,933 | ||
Selling and administrative expenses | 23,600 | ||
Total costs and expenses | 169,533 | ||
Pretax income | 66,467 | ||
Income taxes (20%) | 13,293 | ||
Net income | $ | 53,174 | |
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.)
Ans. | Chart values are based on : | ||||
n | 6 years | ||||
i | 9% | ||||
Select Chart | Amount * | PV factor = | Present value | ||
Present value of an annuity of $1 | $116,107 | 4.486 | $520,856 | ||
Present value of cash inflows | $520,856 | ||||
Initial cash outflows | -$377,600 | ||||
Net present value | $143,256 | ||||
*Working Notes: | |||||
*Calculation of Annual Cash Inflows: | |||||
Particulars | Amount | ||||
Net income | $53,174 | ||||
Add: Depreciation | $62,933 | ||||
Annual cash inflow | $116,107 | ||||
*Calculation of Present value factors: (PV @ 9%) | |||||
Year | PV @ 9% | ||||
1 | 1 / (1 + 0.09)^1 | 0.917 | |||
2 | 1 / (1 + 0.09)^2 | 0.842 | |||
3 | 1 / (1 + 0.09)^3 | 0.772 | |||
4 | 1 / (1 + 0.09)^4 | 0.708 | |||
5 | 1 / (1 + 0.09)^5 | 0.650 | |||
6 | 1 / (1 + 0.09)^6 | 0.596 | |||
Total of Pv of an annuity | 4.486 | ||||
B2B Co. is considering the purchase of equipment that would allow the company to add a...
11-9 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 $377600 with a 10-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 151,040 units of the equipment's product each year. The expected annual income related to this equipment follows Sales Costs 236,000 Materials, labor, and overhead (except depreciation on new equipment) 83,000...
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 $374,400 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 149,760 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 234,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation...
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 $379,200 with a 10-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 151,680 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 237,000 83,000 37,920 Sales Costs Materials, labor, and overhead (except depreciation on new...
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 $374,400 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 149,760 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 234,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation...
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 $374,400 with a 4-year life and no salvage value. It will be depreciated on a straight line basis. The company expects to sell 149,760 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 234,000 ) Costa Materials, labor, and overhead except depreciation on new equipa...
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...
A company is considering the purchase of equipment that would allow the company to add a new product toits line. The equipment is expected to cost $382,400 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 152,960 units of the equipment's product each year. The expected annual income related to this equipment follows: $ 239,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on...
Exercise 25-9 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. (PV of $1, FV of $1,...
B28 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment's product each year. The expected annual income related to this equipment follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use...
B2B Co. is considering the purchase of equipment that would allow the company to expected to cost $376,000 with a 12 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. $ 235,000 Sales Costs Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs...