Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $499,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line 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-Machinery Selling, general, and administrative expenses Required: 1. Determine income and net cash flow for each year of this machine's life. $ 1,950,000 1,495,000 122,250 177,000 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 3. Compute net present value for this machine using a discount rate of 7%.
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $499,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line 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-Machinery Selling, general, and administrative expenses Required: 1. Determine income and net cash flow for each year of this machine's life. $ 1,950,000 1,495,000 122,250 177,000 2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. 3. Compute net present value for this machine using a discount rate of 7%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at
a $499,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line
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-Machinery
Selling, general, and administrative expenses
Required:
1. Determine income and net cash flow for each year of this machine's life.
$ 1,950,000
1,495,000
122,250
177,000
2. Compute this machine's payback period, assuming that cash flows occur evenly throughout each year.
3. Compute net present value for this machine using a discount rate of 7%.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2 Required 3
Compute net present value for this machine using a discount rate of 7%.
Note: Do not round intermediate calculations. Negative amounts should be entered with a minus sign. Round your present
value factor to 4 decimals and final answers to the nearest whole dollar.
Years 1-4
Salvage value, year 4
Total
Present value of cash inflows
Net present value
Net Cash
Flows
Present Value
at 7%
Present Value of
Net Cash Flows
$
0
=
0
=
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