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 $480,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. 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 $480,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. 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%.
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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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 $480,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows.
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
Transcribed Image Text:**Sales and Expenses Overview**
- **Sales of new product**: $1,840,000
**Expenses**
- **Materials, labor, and overhead (except depreciation)**: $1,488,000
- **Depreciation—Machinery**: $115,000
- **Selling, general, and administrative expenses**: $183,100
This section provides a breakdown of the sales and associated expenses related to a new product. The sales figure represents the total revenue generated. The expenses are categorized into three main areas:
1. **Materials, labor, and overhead**: This includes all costs related to production, excluding depreciation, summing up to $1,488,000.
2. **Depreciation—Machinery**: This accounts for the depreciation expense of the machinery used, which is $115,000.
3. **Selling, general, and administrative expenses**: Operational costs such as marketing and administrative functions amount to $183,100.
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