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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 $491,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)   Sales of new product $ 1,940,000 Expenses   Materials, labor, and overhead (except depreciation) 1,507,000 Depreciation—Machinery 117,750 Selling, general, and administrative expenses 149,000   Required: 1. Determine income and net cash flow for each year of this machine’s life. 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 $491,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)   Sales of new product $ 1,940,000 Expenses   Materials, labor, and overhead (except depreciation) 1,507,000 Depreciation—Machinery 117,750 Selling, general, and administrative expenses 149,000   Required: 1. Determine income and net cash flow for each year of this machine’s life. 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%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 $491,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
 

Sales of new product $ 1,940,000
Expenses  
Materials, labor, and overhead (except depreciation) 1,507,000
Depreciation—Machinery 117,750
Selling, general, and administrative expenses 149,000

 
Required:
1. Determine income and net cash flow for each year of this machine’s life.
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%

Annual amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Selling, general, and administrative expenses Income Net cash flow SA Income 1,940,000 $ 1,507,000 117,750 149,000 166,250 $ Cash Flow 1,940,000 1,507,000 117,750 149,000 166,250
Transcribed Image Text:Annual amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Selling, general, and administrative expenses Income Net cash flow SA Income 1,940,000 $ 1,507,000 117,750 149,000 166,250 $ Cash Flow 1,940,000 1,507,000 117,750 149,000 166,250
Numerator: I 1 Payback Period Denominator: = = Payback Period 0
Transcribed Image Text:Numerator: I 1 Payback Period Denominator: = = Payback Period 0
Expert Solution
Step 1

Solution 1:

Expected Net Income
Revenues:    
Sales   $1,940,000
Expenses:    
Materials, labor and overhead $1,507,000  
Selling and administrative expenses $149,000  
Straight line depreciation $117,750  
Total Expenses   $1,773,750
Net Income   $166,250
Expected net Cash Flow
Net Income   $166,250
Add: Straight line Depreciation   $117,750
Net Cash Flow   $284,000

 

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