Question

this question is giving me problems

28 Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is xpected to cost $369,600 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 147,840 units of the equipment's product each year. The expected annual income related to this equipment follows. $ 231,000 Sales Conts Materials, labor, and overhead (except depreciation on new equipment) Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax no Income taxes (30) Net Income 81,000 30,800 23,100 134,900 96,100 20,830 $ 67,270 If at least an 9% return on this investment must be earned, compute the net present value of this investment. PV of $1. EV of $1. PVA of $1. and EVA of $1 (Use appropriate factor(s) from the tables provided.) Chart Values are Based on: i- Select Chart Amount PV Factor- Present Value $ 0 Nel present value

Answer 1

Chart values are based on :
n=	12 years
i=	9%
Select the chart	Amount	×	PV factor	=	Present value
Present value Cash inflows	$98070	×	7.1607	=	$702250
Less:
Present value of cash outflows	$369600	×	1	=	($369600)
Net present value					$332650

Note 1:

Cash flows calculations -

	From year 1 to year 15
Net income	$67270
(+) Depreciation on equipment	$30800
Cash flows	$98070

So that means the cash flows from year 1 to year 15 is $98070.

This is based on the assumption that all the expenses remains same through out 12 years.

Note 2:

Present value annuity factor at 9% for 12 years :

Present value annuity factor = [1 - (1+r)-n ]/r
Where,
r = rate per period = 0.09
n = number of periods = 12
Therefore,
Present value annuity factor at 9% for 12 periods = [1 - (1+0.09)^-12 ]/0.09
= [1 - (1.09)^-12 ]/0.09
= [1 - 1/(1.09)¹²]/0.09
= [1 - 1/2.81267]/0.09
= [1 - 0.3555]/0.09
= 0.64446/0.09
= 7.1607