B2B Co. is considering the purchase of equipment that would allow the company to

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 $372,800 with a 4-year life and no salvage value. It will be depreciated on a straight-line basis.The company expects to sell 149,120 units of the equipment's product each year. The expected annual income related to this equipment follows. If at least an 9% return on this investment must be earned, compute the net present value. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales Costs $ 233,000 Materials, labor, and overhead (except depreciation on new 82,000 equipment) Depreciation on new equipment Selling and administrative expenses 93,200 23,300 Total costs and expenses 198,500 Pretax income Income taxes (30%) 34,500 10,350 Net income $ 24,150 Compute the net present value of this investment. Chart Values are Based on: Select Chart Amount X PV FactorPresent Value Net present value

Explanation / Answer

Cash flows per year = Net income + depreciation

= $24150 + $93200 = $117350

Present value of cash inflows = Annual cash flows*PV factor

= $117350*3.23972

= $380181.14

Cash outflows = $372800

Net present value = Present value of cash inflows - Cash outflows

= $380181.14 - $$372800

= $7381.14

The NPV is $7381.14

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.