Ms. Cookie Corporation is a company specializing in selling cookies for fundraising activities. One year ago, the company purchased a special cookie-cutting machine. However, to have more efficient operations, Ms. Cookie is considering the purchase of a more advanced machine. The new machine would be acquired on December 31, 2016, and management expects that it would sell 1 million dozen cookies in each of the next six years. The selling price of the cookies is expected to average $5.15 per dozen.

Ms. Cookie has two options: continue to operate the old machine, or sell the old machine and purchase the new machine. The following information has been collected to help management decide which option is more profitable:

Assume that all operating revenues and expenses occur at the end of the year.
Instructions
Use the net present value method to determine whether Ms. Cookie should keep the old machine or acquire the new one. The company has a 10% required rate of return on its investments.

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Original cost of machine at acquisition Remaining useful life as of December 31, 2016 Expected annual cash operating expenses Old Machine $360,000 6 years New Machine S520,000 years Variable cost per dozen Total fixed costs $ 0.80 60,000 S 0.45 s 50,000 Estimated cash value of machine December 31, 2016 December 31, 2022 $80,000 $20,000 S520,000 S 20,000