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 $484,000 cost with an expected four-year life and a $18,500 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 |
|
455,000 |
|
| Direct labor |
|
673,000 |
|
| Overhead excluding straight-line depreciation on new machine |
|
337,000 |
|
| Selling and administrative expenses |
|
147,000 |
|
| Income taxes |
|
34 |
% |
1. Compute straight-line depreciation for each year of this new machine's life. Check - 116,375?
| 2. |
Determine expected net income and net cash flow for each year of this machine's life. Check - Net income 86,872
net cash flow - 163,860? I don't think this is correct, and so anything going forward would be wrong as well.....
| 3. |
Compute this machine's payback period, assuming that cash flows occur evenly throughout each year.
| 4. |
Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year.
|
| 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.
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