Doughboy Bakery would like to buy a new machine for putting icing and other toppigs on pastries. These are now put on by hand. The machine that the bakery is considering costs $90,000 new. It would last the bakery for eight years but would require a $7,500 overhaul at the end of the fifth year. After eight years, the machine could be sold for $6,000.
The bakery estimates that it will cost $14,000 per year to operate the new machine. The present manual method of putting toppings on the pastries ost $35,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 5,000 packages per year. The bakery realizes a contribution margin of $0.60 per package. The bakery requires a 16% return on all investments in equipment.
Part 1 - On the tab labeled "PT 1" determine the annual net cash inflows that will be provided by the new machine. (SHOW DETAILED WORK)
Part 2 - On the tab labeled "PT 2" compute the new machine's net present value. Use the incremental cost approach, and round all dollar amounts to the nearest whole dollar. (SHOW DETAILED WORK)
***Note: Please include equations showing how you arrived at the answer.***