Reference no: EM133535483

Question: 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 $487,000 cost with an expected four-year life and a $20,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1)

Note: Use appropriate factor(s) from the tables provided.

Sales of new product	$ 1,990,000
Expenses
Materials, labor, and overhead (except depreciation)	1,503,000
Depreciation-Machinery	116,750
Selling, general, and administrative expenses	165,000

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 6%.