Question

B28 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 $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment's product each year. The expected annual income related to this equipment follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales Costs $ 225, 000 Materials, labor, and overhead (except depreciation on new equipment) 120,000 30,000 22,500 172,500 52,500 15, 750 $ 36,750 Depreciation on new equipment Selling and administrative expenses Total costs and expenses Pretax income Income taxes (30%) Net income If at least an 8% return on this investment must be earned, compute the net present value of this investment. Chart Values are Based on: Select Chart Amount PV Factor = Present Value 0 Net present value

Answer 1

Chart values are based on
n=	12 Years
i=	8%
Select chart	Amount	*	PV factor	=	Present value
Present value of cash inflow	66750	*	7.53608	=	503033.34
Present value of cash inflow				=	503033.34
Initial investment				=	-360000
Net present value					143033.34