B2B 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 $380,800 with a 7-year life and no salvage value. It will

B2B 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 $380,800 with a 7-year life and no salvage value. It will be depreciated on a straight-line basis. B2B Co. concludes that it must earn at least a 9% return on this investment. The company expects to sell 152,320 units of the equipment’s product each year. The expected annual income related to this equipment follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

  

Sales	$	238,000
Costs
Materials, labor, and overhead (except depreciation)		83,000
Depreciation on new equipment		54,400
Selling and administrative expenses		23,800
Total costs and expenses		161,200
Pretax income		76,800
Income taxes (30%)		23,040
Net income	$	53,760

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.)

rev: 05_12_2014_QC_49497


Explanation:

	Annual Net Cash Flows*				Present Value of Annuity at 9%			Present Value of Net Cash Flows
Years 1 through 7		$	108,160			5.0330			$	544,369
Amount to be invested										(380,800	)
Net present value of investment									$	163,569

Based on this net present value analysis, the investment is acceptable.