Question

Exercise 24-9 Computing net present value LO P3 B2B 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 $382,400 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 152,960 units of the equipment’s product each year. The expected annual income related to this equipment follows. Sales $ 239,000 Costs Materials, labor, and overhead (except depreciation on new equipment) 84,000 Depreciation on new equipment 63,733 Selling and administrative expenses 23,900 Total costs and expenses 171,633 Pretax income 67,367 Income taxes (40%) 26,947 Net income $ 40,420 If at least an 10% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Answer 1

Chart Values are Based on:
n =	6
i =	10%
Select Chart	Amount	x	PV Factor	=	Present Value
Present Value of an Annuity of 1	104153	x	4.3553	=	453618
Present value of cash inflows					453618
Present value of cash outflows					(382,400)
Net present value					71218
Note: Annual cash flows = 40420+63733 = $104153