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 $95,000. The manufacturer estimates that themachine would be usable for nine years but would require thereplacement of several key parts at the end of the fifth year.These parts would cost $8,100, including installation. After nineyears, the machine could be sold for $5,500.
The company estimates that the cost to operate the machine will be$9,500 per year. The present method of dipping chocolates costs$35,000 per year. In addition to reducing costs, the new machinewill increase production by 4,600 boxes of chocolates per year. Thecompany realizes a contribution margin of $0.8 per box. A 10% rateof return is required on all investments. (Ignore incometaxes.)
A. What are the annual net cash inflows that will be provided bythe new dipping machine?
B. Compute the new machine's net present value. Use the incrementalcost approach.
Rate tables:
http://ezto.mhhmdemo.mcgraw-hill.com/servlet/TestPilot4/lazerwords/12532669500493800.tp4/exhibit12b-1.jpg
http://ezto.mhhmdemo.mcgraw-hill.com/servlet/TestPilot4/lazerwords/12532669500493800.tp4/exhibit12b-2.jpg
The company estimates that the cost to operate the machine will be$9,500 per year. The present method of dipping chocolates costs$35,000 per year. In addition to reducing costs, the new machinewill increase production by 4,600 boxes of chocolates per year. Thecompany realizes a contribution margin of $0.8 per box. A 10% rateof return is required on all investments. (Ignore incometaxes.)
A. What are the annual net cash inflows that will be provided bythe new dipping machine?
B. Compute the new machine's net present value. Use the incrementalcost approach.
Rate tables:
http://ezto.mhhmdemo.mcgraw-hill.com/servlet/TestPilot4/lazerwords/12532669500493800.tp4/exhibit12b-1.jpg
http://ezto.mhhmdemo.mcgraw-hill.com/servlet/TestPilot4/lazerwords/12532669500493800.tp4/exhibit12b-2.jpg
Related questions
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
|
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 |
