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 $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 equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (40%) Net income 23,700 144,620 92,380 36,952 $ 55,428 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 $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: n = E Select Chart Amount PV Factor = Present Value $ 0 Net present value

Answer 1

Solution:

Cash Flow	Select Chart	Amount	*	PV factor	=	Present Value
Annual cash flow	PVA of $1	$93,348.00	*	6.14457	=	$573,583
	Initial Investment		$379,200
	Net Present Value		$194,383