Problem
K2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $240,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 96,000 units of the equipment%u2019s product each year. The expected annual income related to this equipment follows. (Use Table B.3)
Sales $ 150,000
Costs
Materials, labor, and overhead (except depreciation) 80,000
Depreciation on new equipment 20,000
Selling and administrative expenses 15,000
Total costs and expenses 115,000
Pretax income 35,000
Income taxes (30%) 10,500
Net income $ 24,500
Compute the net present value of this investment.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.