Exercise 24-13 (Algo) Net present value of an annuity LO P3 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $372,800 and has a 6-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income Complete this question by entering your answers in the tabs below. (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value? Required A Required B Years 1 through 6 Compute the net present value of this investment. (Round your present value factor to 4 decimals and other final answers to the nearest whole dollar.) Initial investment Net present value Annual Net Cash Flows $ X 127,700 x Present Value of Annuity at 8% 3.2397 = $ 233,000 82,000 62,133 23,300 $ 65,567 $ Present Value of Net Cash Flows $ 413,710 (372,800) 40,910
Exercise 24-13 (Algo) Net present value of an annuity LO P3 B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $372,800 and has a 6-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation-Equipment Selling, general, and administrative expenses Income Complete this question by entering your answers in the tabs below. (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value? Required A Required B Years 1 through 6 Compute the net present value of this investment. (Round your present value factor to 4 decimals and other final answers to the nearest whole dollar.) Initial investment Net present value Annual Net Cash Flows $ X 127,700 x Present Value of Annuity at 8% 3.2397 = $ 233,000 82,000 62,133 23,300 $ 65,567 $ Present Value of Net Cash Flows $ 413,710 (372,800) 40,910
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Exercise 24-13 (Algo) Net present value of an annuity LO P3
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The
equipment costs $372,800 and has a 6-year life and no salvage value. B2B Company requires at least an 8% return on this investment.
The expected annual income for each year from this equipment follows: (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate
factor(s) from the tables provided.)
Sales of new product
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation-Equipment
Selling, general, and administrative expenses
Income
Complete this question by entering your answers in the tabs below.
(a) Compute the net present value of this investment.
(b) Should the investment be accepted or rejected on the basis of net present value?
Required A Required B
Years 1 through 6
Compute the net present value of this investment. (Round your present value factor to 4 decimals and other final answers to
the nearest whole dollar.)
Initial investment
Net present value
Annual Net Cash
Flows
$
X
127,700 x
Present
Value of
Annuity at
8%
3.2397
$ 233,000
82,000
62,133
23,300
$ 65,567
$
Present Value
of Net Cash
Flows
$
413,710
(372,800)
40,910
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