K2B Company 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. The company expects to sell 96,000 units of the equipment's product each year. The expected annual income related to this equipment follows.
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
K2B concludes that the investment must earn at least an 8% return. Compute the net present value of this investment.