B2B Co. is considering the purchase of equipment that would allow the company to
ID: 2586680 • 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. If at least an 8% return on this investment must be earned, compute the net present value. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
Compute the net present value of this investment.
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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. If at least an 8% return on this investment must be earned, compute the net present value. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)
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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment's product each year. The expected annual income related to this equipment follows. If at least an 8% return on this investment must be earned, compute the net present value. (FV of $1. PV of $1, FVA of $1 and PVA of S1) (Use appropriate factor(s) from the tables provided.) Sales Costs 5 225,000 Materials, labor, and overhead (except depreciation) 120,000 30,000 22,500 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income 172.500 52,500 15.750 Income taxes (30%) Net income S 36,750 Compute the net present value of this investment. Chart Values are Based on: 12 89% elect Chart Amount x PV Factor | Present Value resent Value of an Annuity of 1 Present value of cash inflows Present value of cash outflows Net present valueExplanation / Answer
Annual net cash inflow=net income+depriciation expense of new equipment
=$36,750+$30,00
=$66,750
Present value of annuity 1=$66,750×7.5361( PV factor)=$503,035
Present value of cash inflow=$503,035
Less present value of cash outflow=(360,000)
Net present value=$143,035
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