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 $486,000 cost with an expected four-year life and a $16,200 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.
| Expected annual sales of new product |
$ |
1,860,000 |
|
| Expected annual costs of new product |
|
|
|
| Direct materials |
|
460,000 |
|
| Direct labor |
|
677,000 |
|
| Overhead excluding straight-line depreciation on new machine |
|
336,000 |
|
| Selling and administrative expenses |
|
154,000 |
|
| Income taxes |
|
32 |
% |
|
| 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: |
$ |
|
| 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 7% 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 "$" sign in your response.)
|
| Net present value |
________$ |