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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 $499,000 cost with an expected four-year life and a $11,000 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. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Expected annual sales of new product	$	1,960,000
Expected annual costs of new product
Direct materials		495,000
Direct labor		670,000
Overhead (excluding straight-line depreciation on new machine)		335,000
Selling and administrative expenses		156,000
Income taxes		34	%

Required: 1. Compute straight-line depreciation for each year of this new machines life. 2. Determine expected net income and net cash flow for each year of this machines life. 3. Compute this machines payback period, assuming that cash flows occur evenly throughout each year. 4. Compute this machines 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. (Hint: Salvage value is a cash inflow at the end of the assets life.)

Compute straight-line depreciation for each year of this new machine's life. Straight-line depreciation Determine expected net income and net cash flow for each year of this machine's life. Expected Net Income Revenues Expenses 0 Expected Net Cash Flow 0 Compute this machine's payback period, assuming that cash flows occur evenly throughout each year. Payback Period Choose Denominator: Choose Numerator: / II Payback Period / = Payback period 11 0 Compute this machine's accounting rate of return, assuming that income is earned evenly throughout each year. Accounting Rate of Return Choose Denominator: Choose Numerator: 1 / = Accounting Rate of Return Accounting rate of return 0 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.) (Do not round intermediate calculations. Amounts to be deducted should be indicated by a minus sign.) Chart Values are Based on: n = 1 = % Select Chart Amount PV Factor Present Value Cash Flow Annual cash flow $ 0 Residual value 0 Net present value

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