Factor Company is planning to add a new product to its line. To manufacture this
ID: 2527967 • Letter: F
Question
Factor Company is planning to add a new product to its line. To manufacture this product, the company need a $483,000 cost with an expected four-year life and d $19,000 salvage value. All sales are for cash, and a except for depreciation on the new machine Additional information includes the following (PV of SI FV S S) (Use appropriate fectorts) from the tables provided.) Expected ennual sales of new product Expected annual costs of new prioduct Direct materials Direct labor Overhead (exc luding straight-1ine depreciation on nex machine 11,910,90 496,868 38,880 Iocone taxes ? Required: 1 Compute straight-line depreciation for each yer of this new machine's life 2. Determine expected net income and net cash fiow for each yeer of this machine's life 3. compute this machine's payosck perod, assuming that cosh flows oscur eveniy throughout each 4: Comoute 5. Compite the net present value forms machine uting odacountrate t 6% and Har Salvege vaiue iscash inflor al the end of tbe assets ife this machine's accounting ate of reurn: 855uing that income is esned evenly throughout po thot cash o Complete this question by entering your answers in the tabs below.Explanation / Answer
1) Straight Line Depreciation = (Cost - Salvage Value)/Useful life
= ($483,000 - $19,000)/4 years
= $116,000
2) Calculation of Expected Net Income (Amounts in $)
Net Cash Flow = Net Income+Depreciation Expense
= $84,940+$116,000 = $200,940
3) Pay Back Period = Investment Amount/Annual Cash Flows
= $483,000/$200,940 = 2.40
4) Accounting Rate of return = Annual Net Income/Investment
= $84,940/$483,000 = 0.1759 or 17.59%
Annual Sales (A) 1,910,000 Less: Annual Costs Direct Materials 490,000 Direct Labor 672,000 Overhead (including depreciation) ($338,000+$116,000) 454,000 Selling and Administrative Expenses 157,000 Total Annual Costs (B) 1,773,000 Income Before Taxes (A - B) 137,000 Less: Income Taxes (38%) 52,060 Net Income 84,940Related Questions
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