Help Save & E A company is planning to purchase a machine that will cost $35.400
ID: 2534889 • Letter: H
Question
Help Save & E A company is planning to purchase a machine that will cost $35.400 with a six-year life and no salvage value. The com units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the pany expects to sell the machine's output of 3000 Sales Costs: Manufacturing Depreciation on machine Selling and administrative expenses Income before taxes Income tax (35%) Net income 106,000 $51,300 5,9e0 46,000 (103,20e) $2,800 980) $1,820 Multiple Choice 514% 10.28% 33.33%. 50.00%Explanation / Answer
ans 1 Accounting rate of machine Average incoome/Avg investment*!00 1820/((35400+0)/2)*100 10.28 Option B 10.28% ans 2 NPV of Investment B PV of cash flow 16963.5 (25800*.6575) Less: Initial investment 15600 NPV of Investment B 1364 Option A $1364 ans 3 Annual average investment 65000 Initial Investment+salvage value/2 (126900+3100)/2 Option D $65000 ans 4 Annual cash flow 16100-7900+4100-3280 9020 Payback period 5.43 Initial investment/Annual cashflow 49000/9020 Option C 5.43 years ans 5 PV of cash inflow for year 1 and 2 65949 38000*1.7355 PV of cash inflow for year 3 and 4 47332 33000*(.7513+.6830) Total PV of cash inflow 113281 Less: Initial investment 83000 NPV of Investment B 30281 Option e $30284 If any doubt please comment. If satisfied you can rate the answer
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