The Sweetwater Candy Company would like to buy a new machinethat would automatically "dip" chocolates. The dipping operation iscurrently done largely by hand. The machine the company isconsidering costs $125,000. The manufacturer estimates that themachine would be usable for 10 years. After 10 years, the machinecould be sold for $7,500.
The company estimates that the cost to operate the machine willbe $7,000 per year. The present method of dipping chocolates costs$30,000 per year. In addition to reducing costs, the new machinewill increase production by 6,000 boxes of chocolates per year. Thecompany realizes a contribution margin of $1.50 per box. A 20% rateof return is required on all investments. (Ignore income taxes.)Solve this question using your financial calculator or Excel, NOTthe tables in the chapter. 5.value: 2.00 pointsRequiredinformation
Requirement 1: What are the annual net cash inflows that will beprovided by the new dipping machine?
Requirement 2: Compute the new machine's net present value.
The Sweetwater Candy Company would like to buy a new machinethat would automatically "dip" chocolates. The dipping operation iscurrently done largely by hand. The machine the company isconsidering costs $125,000. The manufacturer estimates that themachine would be usable for 10 years. After 10 years, the machinecould be sold for $7,500.
The company estimates that the cost to operate the machine willbe $7,000 per year. The present method of dipping chocolates costs$30,000 per year. In addition to reducing costs, the new machinewill increase production by 6,000 boxes of chocolates per year. Thecompany realizes a contribution margin of $1.50 per box. A 20% rateof return is required on all investments. (Ignore income taxes.)Solve this question using your financial calculator or Excel, NOTthe tables in the chapter. 5.value: 2.00 pointsRequiredinformation
Requirement 1: What are the annual net cash inflows that will beprovided by the new dipping machine?
Requirement 2: Compute the new machine's net present value.