Elite company is planning to add a new product to its line

Reference no: EM13574022

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 $484,000 cost with an expected four-year life and a $18,500 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		455,000
Direct labor		673,000
Overhead excluding straight-line depreciation on new machine		337,000
Selling and administrative expenses		147,000
Income taxes		34	%

1. Compute straight-line depreciation for each year of this new machine's life. Check - 116,375?

Determine expected net income and net cash flow for each year of this machine's life. Check - Net income 86,872

net cash flow - 163,860? I don't think this is correct, and so anything going forward would be wrong as well.....

Compute this machine's payback period, assuming that cash flows occur evenly throughout each year.

4.	Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year.

5.	Compute the net present value for this machine using a discount rate of 7% and assuming that cash flows occur at each year-end.

Reference no: EM13574022

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