B2B Co. is considering the purchase of equipment that would allow the company to
ID: 2476506 • Letter: B
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 $382,400 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. B2B Co. concludes that it must earn at least a 9% return on this investment. The company expects to sell 152,960 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 appropriate factor(s) from the tables provided.)
Sales $ 239,000
Costs Materials, labor, and overhead (except depreciation)
84,000 Depreciation on new equipment 63,733
Selling and administrative expenses 23,900
Total costs and expenses 171,633
Pretax income
67,367 Income taxes (20%)
13,473 Net income $ 53,894
Explanation / Answer
PMT 117627 no of period 6 rate 9% FV 0 PV $527,665.15 initial cost -382400 NPV $145,265.15
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.