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 $376,000 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) Note: 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 (a) Compute the net present value of this investment. $ 235,000 82,000 62,667 23,500 $ 66,833 (b) Should the investment be accepted or rejected on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required B Compute the net present value of this investment. Note: Round your present value factor to 4 decimals and other final answers to the nearest whole dollar. Annual Net Cash Flows x Present Value of Annuity at 8% = Present Value of Net Cash Flows Years 1 through 6 $ 129,500 x 4.6229= $ Initial investment 598,666 (376,000) Net present value $ 222,566 < Required A Required B >
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 $376,000 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) Note: 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 (a) Compute the net present value of this investment. $ 235,000 82,000 62,667 23,500 $ 66,833 (b) Should the investment be accepted or rejected on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required B Compute the net present value of this investment. Note: Round your present value factor to 4 decimals and other final answers to the nearest whole dollar. Annual Net Cash Flows x Present Value of Annuity at 8% = Present Value of Net Cash Flows Years 1 through 6 $ 129,500 x 4.6229= $ Initial investment 598,666 (376,000) Net present value $ 222,566 < Required A Required B >
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 $376,000 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)
Note: 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
(a) Compute the net present value of this investment.
$ 235,000
82,000
62,667
23,500
$ 66,833
(b) Should the investment be accepted or rejected on the basis of net present value?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Compute the net present value of this investment.
Note: Round your present value factor to 4 decimals and other final answers to the nearest whole dollar.
Annual Net Cash
Flows
x
Present
Value of
Annuity at
8%
=
Present Value
of Net Cash
Flows
Years 1 through 6
$
129,500 x
4.6229=
$
Initial investment
598,666
(376,000)
Net present value
$
222,566
< Required A
Required B
>
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