Blue Spruce Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $100,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $10,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 14,000 frames per year, generating a total contribution margin of $97,500. Martson Molders currently sells a molding machine that will allow Blue Spruce Pix to increase production and sales to 18,000 frames per year. The machine, which has a ten-year life, sells for $122,000 and would cost $10,000 per year to operate. Blue Spruce Pix's current machine costs only $8,000 per year to operate. If Blue Spruce Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $18,600 at the end of its ten-year life. Blue Spruce Pix uses straight-line depreciation. Click here to view the factor table.

(a)

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Calculate the new machine's net present value assuming a 14% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Net present value

$enter the net present value in dollars rounded to 0 decimal places

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(b)

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Use Excel or a similar spreadsheet application to calculate the new machine's internal rate of return. (Round answer to 2 decimal places, e.g. 1.25%.)

Internal rate of return

enter the internal rate of return in percentages rounded to 1 decimal place %

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(c)

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Calculate the new machine's payback period. (Round answer to 2 decimal places, e.g. 1.25.)

Payback period

enter the payback period in years rounded to 2 decimal places years