Divine Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Divine

has accumulated regarding the new machine is:

Cost of the machine	$150,000
Increased contribution margin	$25,000
Life of the machine	8	years
Required rate of return	4	%

Fantastic estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.

1.	Calculate the following for the new machine:
	a.	Net present value
	b.	Payback period
	c.	Discounted payback period
	d.	Internal rate of return (using the interpolation method)
	e.	Accrual accounting rate of return based on net initial investment (assume straight-line depreciation)
2.	What other factors should Divine Candy consider in deciding whether to purchase the new machine?

Present Value of $1 Periods 2% 4% 6% 0.962 0.943 0.961 0.9250.890 0.942 0.8890.840 0.924 0.855 0.792 0.906 0.822 0.747 0.888 0.790 0.705 0.871 0.7600.665 0.853 0.731 0.627 0.837 0.703 0.592 0.820 0.6760.558 0.804 0.650 0.527 0.788 0.625 0.497 0.773 0.601 0.469 0.758 0.577 0.442 15 0.743 0.555 0.417 MOO 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 10% 12% 0.9090.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 0.513 0.452 0.467 0.404 0.424 0.361 0.386 0.322 0.350 0.287 0.319 0.257 0.290 0.229 0.263 0.205 0.239 0.183 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 20% 22% 24% 0.833 0.8200.806 0.694 0.672 0.650 0.579 0.551 0.524 0.4820.451 0.423 0.4020.370 0.341 0.3350.303 0.275 0.2790.249 0.222 0.233 0.204 0.179 0.194 0.167 0.144 0.1620.137 0.116 0.1350.112 0.094 0.112 0.092 0.076 0.093 0.075 0.061 0.078 0.062 0.049 0.065 0.051 0.040 26% 0.794 0.630 0.500 0.397 0.315 0.250 0.198 0.157 0.125 0.099 0.079 0.062 0.050 0.039 0.031 28% 0.781 0.610 0.477 0.373 0.291 0.227 0.178 0.139 0.108 0.085 0.066 0.052 0.040 0.032 0.025 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 13 Present Value of Annuity of $1.00 in Arrears* Periods 2% 4% 6% 8% 0.980 0.962 0.943 0.926 1.942 1.886 1.833 1.783 2.884 2.775 2.673 2.577 3.808 3.630 3.465 3.312 4.713 4.452 4.212 3.993 5.601 5.2424.917 4.623 6.472 6.002 5.582 5.206 7.325 6.7336.210 5.747 8.162 7.435 6.802 6.247 8.983 8.111 7.360 6.710 9.787 8.760 7.887 7.139 10.575 9.3858.384 7.536 11.348 9.986 8.853 7.904 14 12.106 10.563 9.295 8.244 15 12.849 11.118 9.712 8.559 BO VOU AWN 10% 12% 0.909 0.893 1.736 1.690 2.487 2.402 3.170 3.037 3.7913.605 4.355 4.111 4.868 4.564 5.335 4.968 5.759 5.328 6.145 5.650 6.495 5.938 6.814 6.194 7.103 6.424 7.367 6.628 7.606 6.811 14% 16% 0.877 0.862 1.647 1.605 2.322 2.246 2.914 2.798 3.433 3.274 3.8893.685 4.288 4.039 4.639 4.344 4.946 4.607 5.216 4.833 5.453 5.029 5.660 5.197 5.842 5.342 6.002 5.468 6.142 5.575 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 20% 22% 0.833 0.820 1.528 1.492 2.106 2.042 2.589 2.494 2.991 2.864 3.326 3.167 3.605 3.416 3.837 3.619 4.031 3.786 4.1923.923 4.327 4.035 4.4394.127 4.533 4.203 4.611 4.265 4.675 4.315 24% 0.806 1.457 1.981 2.404 2.745 3.020 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 26% 0.794 1.424 1.923 2.320 2.635 2.885 3.083 3.241 3.366 3.465 3.543 3.606 3.656 3.695 3.726 28% 0.781 1.392 1.868 2.241 2.532 2.759 2.937 3.076 3.184 3.269 3.335 3.387 3.427 3.459 3.483 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 13 Compound Amount of $1.00 (The Future Value of $1.00) Periods 2% 4% 6% 8% 10% 12% 1.020 1.040 1.060 1.080 1.100 1.120 1.040 1.082 1.124 1.166 1.210 1.254 1.061 1.125 1.191 1.260 1.331 1.405 1.082 1.170 1.262 1.360 1.464 1.574 1.104 1.217 1.338 1.469 1.611 1.762 1.126 1.265 1.419 1.587 1.772 1.974 1.149 1.316 1.504 1.714 1.949 2.211 1.172 1.369 1.594 1.851 2.144 2.476 1.195 1.423 1.689 1.999 2.358 2.773 1.219 1.480 1.791 2.159 2.594 3.106 1.243 1.539 1.898 2.332 2.853 3.479 12 1.268 1.601 2.012 2.518 3.138 3.896 13 1.294 1.665 2.133 2.720 3.452 4.363 14 1.319 1.732 2.261 2.937 3.797 4.887 15 1.346 1.801 2.397 3.172 4.177 5.474 14% 1.140 1.300 1.482 1.689 1.925 2.195 2.502 2.853 3.252 3.707 4.226 4.818 5.492 6.261 7.138 ON 16% 1.160 1.346 1.561 1.811 2.100 2.436 2.826 3.278 3.803 4.411 5.117 5.936 6.886 7.988 9.266 18% 1.180 1.392 1.643 1.939 2.288 2.700 3.185 3.759 4.435 5.234 6.176 7.288 8.599 10.147 11.974 20% 1.200 1.440 1.728 2.074 2.488 2.986 3.583 4.300 22% 1.220 1.488 1.816 2.215 2.703 3.297 4.023 4.908 5.987 7.305 8.912 10.872 13.264 16.182 19.742 24% 1.240 1.538 1.907 2.364 2.932 3.635 4.508 5.590 6.931 8.594 10.657 13.215 16.386 20.319 25.196 26% 1.260 1.588 2.000 2.520 3.176 4.002 5.042 6.353 8.005 10.086 12.708 16.012 20.175 25.421 32.030 28% 1.280 1.638 2.097 2.684 3.436 4.398 5.629 7.206 9.223 11.80 15.112 19.343 24.759 31.691 40.565 11 6.192 7.430 8.916 10.699 12.839 15.407 Compound Amount of Annuity of $1.00 in Arrears* (Future Value of Annuity) Periods 2% 4% 6% 8% 10% 12% 14% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2.020 2.040 2.060 2.080 2.100 2.120 2.140 3.060 3.122 3.184 3.246 3.310 3.374 3.440 4.122 4.246 4.375 4.506 4.641 4.779 4.921 5.204 5.416 5.637 5.867 6.105 6.353 6.610 6.308 6.633 6.975 7.336 7.716 8.115 8.536 7.434 7.898 8.394 8.923 9.487 10.089 10.730 8.583 9.214 9.897 10.637 11.436 12.300 13.233 9.755 10.583 11.491 12.488 13.579 14.776 16.085 10.950 12.006 13.181 14.487 15.937 17.549 19.337 12.169 13.486 14.972 16.645 18.531 20.655 23.045 12 13.412 15.026 16.870 18.977 21.384 24.133 27.271 13 14.680 16.627 18.882 21.495 24.523 28.029 32.089 14 15.974 18.292 21.015 24.215 27.975 32.393 37.581 15 17.293 20.024 23.276 27.152 31.772 37.280 43.842 mo 16% 1.000 2.160 3.506 5.066 6.877 8.977 11.414 14.240 17.519 21.321 25.733 30.850 36.786 43.672 51.660 18% 1.000 2.180 3.572 5.215 7.154 9.442 12.142 15.327 19.086 23.521 28.755 34.931 42.219 50.818 60.965 20% 1.000 2.200 3.640 5.368 7.442 9.930 12.916 16.499 20.799 25.959 32.150 39.581 48.497 59.196 72.035 22% 1.000 2.220 3.708 5.524 7.740 10.442 13.740 17.762 22.670 28.657 35.962 44.874 55.746 69.010 85.192 24% 1.000 2.240 3.778 5.684 8.048 10.980 14.615 19.123 24.712 31.643 40.238 50.895 64.110 80.496 100.815 26% 1.000 2.260 3.848 5.848 8.368 11.544 15.546 20.588 26.940 34.945 45.031 57.739 73.751 93.926 119.347 Requirement 1. Calculate the following for the new machine: a. Net present value (NPV) (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) The net present value is $ 34,661 b. Payback period (Round your answer to two decimal places.) The payback period is 6.67 years. Not answered yet: E21-22 (similar to) Question Help Divine Cand... c. Discounted payback period (Round interim calculations to the nearest whole dollar. Round the rate to two decimal places, X.XX%.) The discounted payback period is 7.5+ years. d. Internal rate of return (Round the rate to two decimal places, X.XX%.) The internal rate of return (IRR) is _8.15% e. Accrual accounting rate of return based on net initial investment (Round interim calculations to the nearest whole dollar. Round the rate to two decimal places, X.XX%.) The accrual accounting rate of return (AARR) is 5.00% based on net initial investment. Requirement 2. What other factors should Divine consider in deciding whether to purchase the new machine? (Select all that apply.) CV A. Issues related to the financing of the project, and the availability of capital to pay for the system. B. The effect of the system on employee morale. L C. The benefits of the new system for customers. D. The upheaval of installing a new computer system. Its useful life is estimated to be 10 years. This means that Divine could face this upheaval again in 10 years. VE. The costs of training and other "hidden" start-up costs are included in the estimated $160,000 cost of the new machine