Determine expected net income and net cash flow for each

Reference no: EM13582340

Elite 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 $486,000 cost with an expected four-year life and a $16,200 salvage value. All sales are for cash, and all costs are out of pocket except for depreciation on the new machine. Additional information includes the following.

Expected annual sales of new product	$	1,860,000
Expected annual costs of new product
Direct materials		460,000
Direct labor		677,000
Overhead excluding straight-line depreciation on new machine		336,000
Selling and administrative expenses		154,000
Income taxes		32	%

Required:

Compute straight-line depreciation for each year of this new machine's life. (Omit the "$" sign in your response.)

Straight line depreciation: $______

2.	Determine expected net income and net cash flow for each year of this machine's life. (Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Net income:	$
Net cash flow:	$

3.	Compute this machine's payback period, assuming that cash flows occur evenly throughout each year.(Round your answer to 2 decimal places.)

Payback period:

_________ years

4.	Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Accounting rate of return

_______%

Compute the net present value for this machine using a discount rate of 7% and assuming that cash flows occur at each year-end. (Hint: Salvage value is a cash inflow at the end of the asset's life.) (Round "PV Factor" to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Net present value

________$

Reference no: EM13582340

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