FINANCE

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 $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 (50%) 17,500


  Net income $ 17,500





 

1. Compute the payback period.
2. Compute the accounting rate of return for this equipment.

 

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 $369,600 with a 7-year life and no salvage value. It will be depreciated on a straight-line basis. B2B Co. concludes that it must earn at least a 9% return on this investment. The company expects to sell 147,840 units of the equipment’s product each year. The expected annual income related to this equipment follows. (PV of $1FV of $1PVA of $1, and FVA of $1(Use appropriate factor(s) from the tables provided.)

 

  Sales $ 231,000
  Costs
     Materials, labor, and overhead (except depreciation) 81,000
     Depreciation on new equipment 52,800
     Selling and administrative expenses 23,100


  Total costs and expenses 156,900


  Pretax income 74,100
  Income taxes (40%) 29,640


  Net income $ 44,460





 

Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount.)

 

 

Order now and get 10% discount on all orders above $50 now!!The professional are ready and willing handle your assignment.

ORDER NOW »»