B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $379,200 and has a 12-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from 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 of new product $ 237,000 Expenses Materials, labor, and overhead (except depreciation) 83,000 Depreciation—Equipment 31,600 Selling, general, and administrative expenses 23,700 Income $ 98,700 (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value?
B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $379,200 and has a 12-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from 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 of new product $ 237,000 Expenses Materials, labor, and overhead (except depreciation) 83,000 Depreciation—Equipment 31,600 Selling, general, and administrative expenses 23,700 Income $ 98,700 (a) Compute the net present value of this investment. (b) Should the investment be accepted or rejected on the basis of net present value?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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B2B Company is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment costs $379,200 and has a 12-year life and no salvage value. B2B Company requires at least an 8% return on this investment. The expected annual income for each year from 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 of new product | $ 237,000 |
|---|---|
| Expenses | |
| Materials, labor, and |
83,000 |
| Depreciation—Equipment | 31,600 |
| Selling, general, and administrative expenses | 23,700 |
| Income | $ 98,700 |
(a) Compute the
(b) Should the investment be accepted or rejected on the basis of net present value?
Transcribed Image Text:Years 1 through 12
Net present value
Annual Net Cash
Flows
X
Present
Value of
Annuity at
8%
Present Value
of Net Cash
Flows
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