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 $377,600 with a 10-year life and no salvage
value. It will be depreciated on a straight-line basis. The company
expects to sell 151,040 units of the equipment’s product each year.
The expected annual income related to this equipment follows.
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| Sales |
$ |
236,000 |
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| Costs |
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| Materials, labor, and overhead
(except depreciation on new equipment) |
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83,000 |
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| Depreciation on new
equipment |
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37,760 |
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| Selling and administrative
expenses |
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23,600 |
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| Total costs and expenses |
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144,360 |
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| Pretax income |
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91,640 |
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| Income taxes (20%) |
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18,328 |
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| Net income |
$ |
73,312 |
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If at least an 8% 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.)
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