Question
(Ignore income taxes in this problem.) Baker Corporation is considering buying a new donut maker. This machine will replace an old donut maker that still
(Ignore income taxes in this problem.) Baker Corporation is considering buying a new donut maker. This machine will replace an old donut maker that still has a useful life of 4 years. The new machine will cost $3,500 a year to operate, as opposed to the old machine, which costs $3,900 per year to operate. Also, because of increased capacity, an additional 10,000 donuts a year can be produced. The company makes a contribution margin of $0.15 per donut. The old machine can be sold for $6,000 and the new machine costs $28,000. The incremental annual net cash inflows provided by the new machine would be:
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