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 $1.50 per box. A 20% rateof return is required on all investments. (Ignore incometaxes.)
Requirement1: What are the annual net cash inflows that will be provided bythe new dipping machine? (Omit the "$" sign in yourresponse.)
Annual net cashinflows
Requirement2: Compute the new machine's net present value. (Round youranswer to the nearest dollar amount. Omit the "$" sign in yourresponse.)
Net presentvalue
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 $1.50 per box. A 20% rateof return is required on all investments. (Ignore incometaxes.)
| Requirement1: |
What are the annual net cash inflows that will be provided bythe new dipping machine? (Omit the "$" sign in yourresponse.) |
| Annual net cashinflows |
| Requirement2: |
Compute the new machine's net present value. (Round youranswer to the nearest dollar amount. Omit the "$" sign in yourresponse.) |
| Net presentvalue |
