Calculate the annual rate of return for the new machine Compute the cash pay back period for the new machine Compute the net present value of the new machine Blossom Company is considering the purchase of a new machine Its invoice price is $117,000, freight charges are estimated to be $2,900, and installation costs are expected to be $4,800 Salvage value of the new machine is expected to be zero after a useful life of 4 years Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased At that time, the salvage value of the equipment would be zero If the new machine is purchased now, the existing machine would be scrapped Blossom's accountant, Lisa Hsung, has accumulated the following data regarding annual sales and expenses with and without the new machine 1 Without the new machine, Blossom can sell 9,600 units of product annually at a per unit selling price of $100 If the new unit is purchased, the number of units produced and sold would increase by 25 , and the selling price would remain the same 2 The new machine is faster than the old machine, and it is more efficient in its usage of materials With the old machine, the gross profit rate will be 28 5 of sales, whereas the rate will be 30 of sales with the new machine (Note These gross profit rates do not include depreciation on the machines For purposes of determining net income, treat depreciation expense as a separate line item ) 3 Annual selling expenses are $154,000 with the current equipment Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10 if it is purchased 4 Annual administrative expenses are expected to be $96,000 with the old machine, and $108,000 with the new machine 5 The current book value of the existing machine is $38,000 Blossom uses straight line depreciation 6 Blossom's management has a required rate of return of 15 on its investment and a cash payback period of no more than 3 years

Question

Calculate the annual rate of return for the new machine  Compute the cash pay back period for the new machine  Compute the net present value of the new machine  Blossom Company is considering the purchase of a new machine  Its invoice price is $117,000, freight charges are estimated to be $2,900, and installation costs are expected to be $4,800  Salvage value of the new machine is expected to be zero after a useful life of 4 years  Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased  At that time, the salvage value of the equipment would be zero  If the new machine is purchased now, the existing machine would be scrapped  Blossom's accountant, Lisa Hsung, has accumulated the following data regarding annual sales and expenses with and without the new machine  1  Without the new machine, Blossom can sell 9,600 units of product annually at a per unit selling price of $100  If the new unit is purchased, the number of units produced and sold would increase by 25 , and the selling price would remain the same  2  The new machine is faster than the old machine, and it is more efficient in its usage of materials  With the old machine, the gross profit rate will be 28 5  of sales, whereas the rate will be 30  of sales with the new machine  (Note  These gross profit rates do not include depreciation on the machines  For purposes of determining net income, treat depreciation expense as a separate line item ) 3  Annual selling expenses are $154,000 with the current equipment  Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10  if it is purchased  4  Annual administrative expenses are expected to be $96,000 with the old machine, and $108,000 with the new machine  5  The current book value of the existing machine is $38,000  Blossom uses straight line depreciation  6  Blossom's management has a required rate of return of 15  on its investment and a cash payback period of no more than 3 years

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Calculate the annual rate of return for the new machine. Compute the cash pay back period for the new machine. Compute the net present value

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