Exercise 24 6 Computing net present value L.O. P3
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K2B 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 $240,000 with a 12 year life and no salvage value. It will be depreciated on a straight line basis. K2B Co. concludes that it must earn at least a 8% return on this investment. The company expects to sell 96,000 units of the equipment%u2019s product each year. The expected annual income related to this equipment follows. (Use Table B.3) |
| Sales | $ | 150,000 | |
| Costs | |||
| Materials, labor, and overhead (except depreciation) | 80,000 | ||
| Depreciation on new equipment | 20,000 | ||
| Selling and administrative expenses | 15,000 | ||
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| Total costs and expenses | 115,000 | ||
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| Pretax income | 35,000 | ||
| Income taxes (30%) | 10,500 | ||
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| Net income | $ | 24,500 | |
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Compute the net present value of this investment. (Round “PV Factor” to 4 decimal places. Round your intermediate calculations and final answer to the nearest dollar amount. Omit the “$” sign in your response.) |