The Sweetwater Candy Company would like to buy a new machine thatwould automatically "dip" chocolates. The dipping operation iscurrently done largely by hand. The machine the company isconsidering costs $81,000. The manufacturer estimates that themachine would be usable for eight years but would require thereplacement of several key parts at the end of the fifth year.These parts would cost $6,600, including installation. After eightyears, the machine could be sold for $6,100.
The company estimates that thecost to operate the machine will be $11,500 per year. The presentmethod of dipping chocolates costs $48,000 per year. In addition toreducing costs, the new machine will increase production by 4,000boxes of chocolates per year. The company realizes a contributionmargin of $0.7 per box. A 9% rate of return is required on allinvestments. (Ignore income taxes.)
Annual net cash inflows- $39300
Requirement 2: Compute the new machine's net present value. Use the incrementalcost approach.
Net present value-$ ______________ round to nearest dollar
The Sweetwater Candy Company would like to buy a new machine thatwould automatically "dip" chocolates. The dipping operation iscurrently done largely by hand. The machine the company isconsidering costs $81,000. The manufacturer estimates that themachine would be usable for eight years but would require thereplacement of several key parts at the end of the fifth year.These parts would cost $6,600, including installation. After eightyears, the machine could be sold for $6,100. | ||
| The company estimates that thecost to operate the machine will be $11,500 per year. The presentmethod of dipping chocolates costs $48,000 per year. In addition toreducing costs, the new machine will increase production by 4,000boxes of chocolates per year. The company realizes a contributionmargin of $0.7 per box. A 9% rate of return is required on allinvestments. (Ignore income taxes.) Annual net cash inflows- $39300
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Related questions
The Sweetwater Candy Company would like to buy a new machinethat would automatically âdipâ chocolates. The dipping operation iscurrently done largely by hand. The machine the company isconsidering costs $190,000. The manufacturer estimates that themachine would be usable for five years but would require thereplacement of several key parts at the end of the third year.These parts would cost $11,100, including installation. After fiveyears, the machine could be sold for $8,000. | ||
| The company estimates thatthe cost to operate the machine will be $9,100 per year. Thepresent method of dipping chocolates costs $51,000 per year. Inaddition to reducing costs, the new machine will increaseproduction by 7,000 boxes of chocolates per year. The companyrealizes a contribution margin of $1.55 per box. A 21% rate ofreturn is required on all investments.
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