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Kate s Candy Corporation makes chewy chocolate candies at a plant in Winston - Salem, North Carolina. Steve Bishop, the production manager at this facility,

Kates Candy Corporation makes chewy chocolate candies at a plant in Winston-Salem, North Carolina. Steve Bishop, the production manager at this facility, installed a packaging machine last year at a cost of $630,000. This machine is expected to last for 10 more years with no residual value. Operating costs for the projected levels of production, before depreciation, are $126,000 annually.
Steve has just learned of a new packaging machine that would work much more efficiently in the production line. This machine would cost $730,800 installed, but the annual operating costs would be only $50,400 before depreciation. This machine would be depreciated over 10 years with no residual value. He could sell the current packaging machine this year for $315,000.
Steve has worked for Kates Candy for 7 years. He plans to remain with the firm for about 2 more years, when he expects to become a vice president of operations at his father-in-laws company. Kates Candy pays Steve a fixed salary with an annual bonus of 5% of net income for the year.
Assume that Kates Candy uses straight-line depreciation and has a 10% required rate of return. Ignore income tax effects.
Required:
1. What is the estimated net present value of purchasing the new machine? (Do not round intermediate calculation. Round your answers to the nearest whole dollar amount.)
2. How much would Steve Bishops compensation be increased or decreased by the investment? (Negative amounts should be indicated by a minus sign.)!
Required Information
[The following information applies to the questions displayed below.]
Kate's Candy Corporation makes chewy chocolate candles at a plant In Winston-Salem, North Carolina. Steve Bishop, the
production manager at this facility, Installed a packaging machine last year at a cost of $630,000. This machine is
expected to last for 10 more years with no residual value. Operating costs for the projected levels of production, before
depreciation, are $126,000 annually.
Steve has just learned of a new packaging machine that would work much more efficlently in the production IIne. This
machine would cost $730,800 Installed, but the annual operating costs would be only $50,400 before depreclation. This
machine would be depreclated over 10 years with no residual value. He could sell the current packaging machine thls year
for $315,000.
Steve has worked for Kate's Candy for 7 years. He plans to remain with the firm for about 2 more years, when he expects
to become a vice president of operations at his father-In-law's company. Kate's Candy pays Steve a fixed salary with an
annual bonus of 5% of net income for the year.
Assume that Kate's Candy uses straight-IIne depreclation and has a 10% required rate of return. Ignore income tax effects.
Requlred:
What is the estimated net present value of purchasing the new machine? (Do not round Intermedlate calculatlon. Round your
answers to the nearest whole dollar amount.)
How much would Steve Bishop's compensation be Increased or decreased by the Investment? (Negatlve amounts should be
Indlcated by a minus s|gn.)
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