Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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 $515,000 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
Expenses
Materials, labor, and
overhead (except
depreciation)
Depreciation Machinery
Selling, general, and
administrative expenses
Ś
1,890,000
1,472,000
123,750
179,000
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 6%.
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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 $515,000 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 Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Selling, general, and administrative expenses Ś 1,890,000 1,472,000 123,750 179,000 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 6%.
Required 1 Required 2 Required 3
Determine income and net cash flow for each year of this machine's life.
Annual amounts
Sales of new product
Expenses
Materials, labor, and overhead (except depreciation)
Depreciation Machinery
Selling, general, and administrative expenses
Income
Net cash flow
Required 1 Required 2 Required 3
Numerator:
Years 1-4
Salvage value, year 4
Total
1
1
Net present value
< Required 1
Required 3
< Required 1
Net Cash
Flows
$
Compute this machine's payback period, assuming that cash flows occur evenly throughout each year.
Payback Period
Denominator:
X
$
< Required 2
Income
1,890,000
=
1,472,000
123,750
179,000
115,250
Required 1 Required 2
Compute net present value for this machine using a discount rate of 6%. (Do not round intermediat
amounts should be entered with a minus sign. Round your present value factor to 4 decimals and fir
nearest whole dollar.)
$
Required 2 >
Cash Flow
Present Value
at 6%
Payback Period
0
Required 3 >
=
0
Required 3
Present Value of
Net Cash Flows
$
0
0
expand button
Transcribed Image Text:Required 1 Required 2 Required 3 Determine income and net cash flow for each year of this machine's life. Annual amounts Sales of new product Expenses Materials, labor, and overhead (except depreciation) Depreciation Machinery Selling, general, and administrative expenses Income Net cash flow Required 1 Required 2 Required 3 Numerator: Years 1-4 Salvage value, year 4 Total 1 1 Net present value < Required 1 Required 3 < Required 1 Net Cash Flows $ Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. Payback Period Denominator: X $ < Required 2 Income 1,890,000 = 1,472,000 123,750 179,000 115,250 Required 1 Required 2 Compute net present value for this machine using a discount rate of 6%. (Do not round intermediat amounts should be entered with a minus sign. Round your present value factor to 4 decimals and fir nearest whole dollar.) $ Required 2 > Cash Flow Present Value at 6% Payback Period 0 Required 3 > = 0 Required 3 Present Value of Net Cash Flows $ 0 0
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