# SP24 - Value Present Net Cash of \$1 at Value of Net Year...

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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 24-01A FACTOR COMPANY Calculations Part 1 Annual depreciation \$115,000 Correct! Part 2 Expected income and cash flow Net Net Cash Income Flow Expected annual sales of new product \$1,840,000 \$1,840,000 Expected costs of new product: Direct materials (480,000) (480,000) Direct labor (672,000) (672,000) Overhead excluding (336,000) (336,000) depreciation on new asset Depreciation on new asset (115,000) Selling and administrative expenses (160,000) (160,000) Income before taxes 77,000 Income taxes (23,100) (23,100) Net income \$53,900 Net cash flow Correct! \$168,900 Correct! Part 3 Payback period 2.84 years Correct! Part 4 Accounting rate of return Average investment: Asset cost \$480,000 Final year's book value 20,000 Sum \$500,000 Average \$250,000 Accounting rate of return 21.56% Correct! Part 5 Net present value of asset Present Value of Net Cash Flows: Present

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Unformatted text preview: Value Present Net Cash of \$1 at Value of Net Year Flows 7% Cash Flows 1 \$168,900 0.9346 \$157,854 2 168,900 0.8734 147,517 3 168,900 0.8163 137,873 4* 188,900 0.7629 144,112 Total \$695,600 \$587,356 Amount invested (480,000) Net present value \$107,356 Correct! *Year 4's cash flow includes the \$20,000 salvage value of the machine. Given Data P24-01: FACTOR COMPANY Cost of new machine \$480,000 Life of new machine in years 4 Salvage value of new machine \$20,000 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 S-L depreciation on new machine \$336,000 Selling and administrative expenses \$160,000 Income taxes 0.3 Discount rate for net present value of investment 0.07 Check figures: (4) 21.56% (5) \$107,356...
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