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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 $480,000 cost with an expected four-year life and a $20,000 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	$	1,840,000
Expected annual costs of new product
Direct materials		480,000
Direct labor		672,000
Overhead (excluding straight-line depreciation on new machine)		336,000
Selling and administrative expenses		160,000
Income taxes		30	%

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 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.) (Do not round intermediate calculations. Amounts to be deducted should be indicated by a minus sign.)

	Chart Values are Based on: n =not attempted 4selected answer correct i =not attempted 7%selected answer correct Cash Flow Select Chart Amount x PV Factor = Present Value Annual cash flow Present Value of an Annuity of 1selected answer correct $168,900selected answer correct x = Residual value Present Value of 1selected answer correct = Net present value

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