Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)Sales of new product$ 1,970,000Expenses Materials, labor, and overhead (except depreciation)1,502,000Depreciation—Machinery120,250Selling, general, and administrative expenses180,000Required:1. Determine income and net cash flow for each year of this machine’s life2. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.3. Compute net present value for this machine using a discount rate of 7%.Do do not give solution in image fromat

Net present value(NPV) is the difference between present value of all cash inflows and initial…

Answered: Factor Company is planning to add a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line 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	$ 1,970,000
Expenses
Materials, labor, and overhead (except depreciation)	1,502,000
Depreciation—Machinery	120,250
Selling, general, and administrative expenses	180,000

Required:
1. Determine income and net cash flow for each year of this machine’s life
2. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.
3. Compute net present value for this machine using a discount rate of 7%.

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