B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line.
B2B Co. is considering the purchase of equipment that would allow
the company to add a new product to its line. The equipment is expected to cost $377,600 with a 6-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell $151,040 units of the equipment’s product each year. The expected annual income related to this equipment follows.
Sales $236,000
Costs
Materials, labor, and overhead (except depreciation on new equipment) $83,000
Depreciation on new equipment $62,933
Selling and administrative expenses $23,600
Total costs and expenses $169,533
Pretax income $66,467
Income taxes (20%) $13,293
Net income $53,174
If at least an 9% return on this investment must be earned, compute the net present value of this investment. (PV of $1, FV of $1, PVA of $1 and FVA of $1) (Use appropriate factor(s) from the tables provided.)
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