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 5-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 10% return on this investment. The company expects to sell 152,960 units of the equipments 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 |
$ |
239,000 |
|
| Costs |
|
|
|
| Materials, labor, and overhead (except depreciation) |
|
84,000 |
|
| Depreciation on new equipment |
|
76,480 |
|
| Selling and administrative expenses |
|
23,900 |
|
| |
|
|
|
| Total costs and expenses |
|
184,380 |
|
| |
|
|
|
| Pretax income |
|
54,620 |
|
| Income taxes (30%) |
|
16,386 |
|
| |
|
|
|
| Net income |
$ |
38,234 |
|
| |
|
|
|
|
Compute the net present value of this investment.