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Elite 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 $488,000 cost with an expected four year life and a $18,000 salvage value. All sales are for cash, and all costs are out of pocket except for depreciation on the new machine. Additional information includes the following. (Use Table B.1) |
| Expected annual sales of new product | $ | 1,950,000 | |
| Expected annual costs of new product | |||
| Direct materials | 470,000 | ||
| Direct labor | 672,000 | ||
| Overhead excluding straight line depreciation on new machine | 337,000 | ||
| Selling and administrative expenses | 162,000 | ||
| Income taxes | 30 | % | |
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| Required: | |
| 1. |
Compute straight line depreciation for each year of this new machine’s life. (Omit the “$” sign in your response.) |
| Straight line depreciation | $ |
| 2. |
Determine expected net income and net cash flow for each year of this machine’s life. (Round your answers to the nearest dollar amount. Omit the “$” sign in your response.) |
| Net income | $ |
| Net cash flow | $ |
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| 3. |
Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.(Round your answer to 2 decimal places.) |
| Payback period | years |
| 4. |
Compute this machine’s accounting rate of return, assuming that income is earned evenly throughout each year. (Round your answer to 2 decimal places. Omit the “%” sign in your response.) |
| Accounting rate of return | % |
| 5. |
Compute the net present value for this machine using a discount rate of 6% and assuming that cash flows occur at each year end. (Hint: Salvage value is a cash inflow at the end of the asset’s life.) (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the “$” sign in your response.) |
| Net present value | $ |
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