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 $491,000 cost with an expected four-year life and a $15,000 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. (FV of $1, PV of $1, FVA of $1 and PVA 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 490,000 Direct labor 676,000 Overhead (excluding straight-line depreciation on new machine) 335,000 Selling and administrative expenses 141,000 Income taxes 40 % Required:
Compute the net present value for this machine using a discount rate of 6% and assuming that cash flows occur at each year-end.
