CH 25 HW ×1. d4 Dire Straits \" Money Fo O ? eztont education orn hrntpx?30A8428

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CH 25 HW ×1. d4 Dire Straits " Money Fo O ? eztont education orn hrntpx?30A84288 16334813973-1523659300A? Question 1 (of ? value 100.00 points Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $515,000 cost with an expected four-year life and a $23,000 salvage value. All sales are for cash, and all costs are out-of-pocket, except for depreciation on the new machine Additional information includes the following (EV of S1, PY of $1. FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) $1,990,000 Expected annual sales of new product Expected annual costs of new product Direct materials Direct labor Overhead (excluding straight-ine depreciation on new machine) Selling and administrative expenses Income taxes 500,000 675,000 337,000 172,000 32% Required: 1. Compute straight-line depreciation for each year of this new machine's life $123,000 2. Determine expected net income and net cash flow for each year of this machine's life Type here to search

Explanation / Answer

Required: 1. Compute straight ­line depreciation for each year of this new machine’s life. Straight­ line depreciation = (Cost of asset – salvage value)/life of asset =($515000-$23000)/4=$123000 2. Expected net income and net cash flow for each year of this machine’s life. Revenues Sales $1,980,000 Expenses Direct materials $500,000 Direct labor $675,000 Overhead excluding Depreciation $337,000 Depreciation expense ($515000-$23000)/4 $123,000 Selling and administrative expenses $172,000 Total expenses $1,807,000 Income before taxes $173,000 Income tax expense @32% $55,360 Net income $117,640 Expected Net Cash Flow Net income $117,640 Depreciation expense $123,000 Net cash flow $240,640 3) Payback Period Choose Numerator: / Choose Denominator: = Payback Period Cost of investment / Annual net cash flow = Payback period $515,000.00 / $240,640.00 = 2.14 years 4) Accounting Rate of Return Choose Numerator: / Choose Denominator: = Accounting Rate of Return Annual after tax net income / Annual average investment = Accounting Rate of Return $117,640.00 / $269,000.00 = 44% Annual average investment =(515000+23000)/2 =269000 5) Chart Values are Based on: n= 4 i= 6% Cash Flow Select chart Amount X PV factor = Present value Annual cash flow Present Value of an Annuity of 1 240640 X 3.465 = $833,818 Residual value Present Value of of 1 23000 X 0.7921 = $18,218 Present value of cash Inflow = $852,036 Less- Present value of cash outflow = $515,000 Net present value = $337,036

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