Finance

| January 28, 2015

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.

Sales $ 150,000
Costs
Materials, labor, and overhead (except depreciation) 80,000
Depreciation on new equipment 20,000
Selling and administrative expenses 15,000


Total costs and expenses 115,000


Pretax income 35,000
Income taxes (30%) 10,500


Net income $ 24,500




 

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