Martinez Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $104,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $10,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 15,000 frames per year, generating a total contribution margin of $99,000. Martson Molders currently sells a molding machine that will allow Martinez Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $139,000 and would cost $15,000 per year to operate. Martinez Pixs current machine costs only $8,000 per year to operate. If Martinez Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $20,000 at the end of its ten-year life. Martinez Pix uses straight-line depreciation.

Calculate the new machines net present value assuming a 16% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Net present value

$enter the net present value in dollars rounded to 0 decimal places

(b)

Use Excel or a similar spreadsheet application to calculate the new machines internal rate of return. (Round answer to 2 decimal places, e.g. 1.25%.)

Internal rate of return

enter the internal rate of return in percentages rounded to 1 decimal place %

(c)

Calculate the new machines payback period. (Round answer to 2 decimal places, e.g. 1.25.)

Payback period

enter the payback period in years rounded to 2 decimal places years

APPENDIX 9.1 Present value of $1 received in n periods. 5% 6% 7% 8% 10% 11% 12% 13% 14% 16% 20% Periods 1 2 3 4 5 0.9615 0.9246 0.8890 0.8548 0.8219 0.9524 0.9070 0.8638 0.8227 0.7835 0.9434 0.8900 0.8396 0.7921 0.7473 0.9346 0.8734 0.8163 0.7629 0.7130 0.9259 0.8573 0.7938 0.7350 0.6806 9% 0.9174 0.8417 0.7722 0.7084 0.6499 0.9091 0.8264 0.7513 0.6830 0.6209 0.9009 0.8116 0.7312 0.6587 0.5935 0.8929 0.7972 0.7118 0.6355 0.5674 0.8850 0.7831 0.6931 0.6133 0.5428 0.8772 0.7695 0.6750 0.5921 0.5194 0.8621 0.7432 0.6407 0.5523 0.4761 18% 0.8475 0.7182 0.6086 0.5158 0.4371 0.8333 0.6944 0.5787 0.4823 0.4019 67890 0.7903 0.7599 0.7307 0.7026 0.6756 0.7462 0.7107 0.6768 0.6446 0.6139 0.7050 0.6651 0.6274 0.5919 0.5584 0.6663 0.6227 0.5820 0.5439 0.5083 0.6302 0.5835 0.5403 0.5002 0.4632 0.5963 0.5470 0.5019 0.4604 0.4224 0.5645 0.5132 0.4665 0.4241 0.3855 0.5346 0.4817 0.4339 0.3909 0.3522 0.5066 0.4523 0.4039 0.3606 0.3220 0.4803 0.4251 0.3762 0.3329 0.2946 0.4556 0.3996 0.3506 0.3075 0.2697 0.4104 0.3538 0.3050 0.2630 0.2267 0.3704 0.3139 0.2660 0.2255 0.1911 0.3349 0.2791 0.2326 0.1938 0.1615 11 12 13 14 15 0.6496 0.6246 0.6006 0.5775 0.5553 0.5847 0.5568 0.5303 0.5051 0.4810 0.5268 0.4970 0.4688 0.4423 0.4173 0.4751 0.4440 0.4150 0.3878 0.3624 0.4289 0.3971 0.3677 0.3405 0.3152 0.3875 0.3555 0.3262 0.2992 0.2745 0.3505 0.3186 0.2897 0.2633 0.2394 0.3173 0.2858 0.2575 0.2320 0.2090 0.2875 0.2567 0.2292 0.2046 0.1827 0.2607 0.2307 0.2042 0.1807 0.1599 0.2366 0.2076 0.1821 0.1597 0.1401 0.1954 0.1685 0.1452 0.1252 0.1079 0.1619 0.1372 0.1163 0.0985 0.0835 0.1346 0.1122 0.0935 0.0779 0.0649 16 17 18 19 20 0.5339 0.5134 0.4936 0.4746 0.4564 $1 (1 + i)" 0.4581 0.4363 0.4155 0.3957 0.3769 0.3936 0.3714 0.3503 0.3305 0.3118 0.3387 0.3166 0.2959 0.2765 0.2584 0.2919 0.2703 0.2502 0.2317 0.2145 0.2519 0.2311 0.2120 0.1945 0.1784 0.2176 0.1978 0.1799 0.1635 0.1486 0.1883 0.1696 0.1528 0.1377 0.1240 0.1631 0.1456 0.1300 0.1161 0.1037 0.1415 0.1252 0.1108 0.0981 0.0868 0.1229 0.1078 0.0946 0.0829 0.0728 0.0930 0.0802 0.0691 0.0596 0.0514 0.0708 0.0600 0.0508 0.0431 0.0365 0.0541 0.0451 0.0376 0.0313 0.0261 PV = APPENDIX 9.2 Present value of an annuity of $1 per period. Periods 4% 5% 6% 7% 8% 9% 10% 12% 13% 14% 18% 20% 1 2 3 4 5 0.9615 1.8861 2.7751 3.6299 4.4518 0.9524 1.8594 2.7232 3.5460 4.3295 0.9434 1.8334 2.6730 3.4651 4.2124 0.9346 0.9259 0.9174 0.9091 1.8080 1.7833 1.7591 1.7355 2.6243 2.5771 2.5313 2.4868 3.3872 3.3121 3.2397 3.1698 4.1002 3.9927 3.8897 3.7907 11% 0.9009 1.7125 2.4437 3.1024 3.6959 0.8929 1.6901 2.4018 3.0373 3.6048 0.8850 1.6681 2.3612 2.9745 3.5172 0.8772 1.6467 2.3216 2.9137 3.4331 16% 0.8621 1.6052 2.2459 2.7982 3.2743 0.8475 1.5656 2.1743 2.6901 3.1272 0.8333 1.5278 2.1065 2.5887 2.9906 6 7 8 9 10 5.2421 6.0021 6.7327 7.4353 8.1109 5.0757 5.7864 6.4632 7.1078 7.7217 4.9173 5.5824 6.2098 6.8017 7.3601 4.7665 4.6229 4.4859 5.3893 5.2064 5.0330 5.9713 5.7466 5.5348 6.5152 6.2469 5.9952 7.0236 6.7101 6.4177 4.3553 4.8684 5.3349 5.7590 6.1446 4.2305 4.7122 5.1461 5.5370 5.8892 4.1114 4.5638 4.9676 5.3282 5.6502 3.9975 4.4226 4.7988 5.1317 5.4262 3.8887 4.2883 4.6389 4.9464 5.2161 3.6847 4.0386 4.3436 4.6065 4.8332 3.4976 3.8115 4.0776 4.3030 4.4941 3.3255 3.6046 3.8372 4.0310 4.1925 11 12 13 14 15 8.7605 9.3851 9.9856 10.5631 11.1184 8.3064 8.8633 9.3936 9.8986 10.3797 7.8869 8.3838 8.8527 9.2950 9.7122 7.4987 7.9427 8.3577 8.7455 9.1079 7.1390 6.8052 7.5361 7.1607 7.9038 7.4869 8.2442 7.7862 8.5595 8.0607 6.4951 6.8137 7.1034 7.3667 7.6061 6.2065 6.4924 6.7499 6.9819 7.1909 5.9377 6.1944 6.4235 6.6282 6.8109 5.6869 5.9176 6.1218 6.3025 6.4624 5.4527 5.6603 5.8424 6.0021 6.1422 5.0286 5.1971 5.3423 5.4675 5.5755 4.6560 4.7932 4.9095 5.0081 5.0916 4.3271 4.4392 4.5327 4.6106 4.6755 16 11.6523 10.8378 10.1059 17 12.1657 11.2741 10.4773 18 12.6593 11.6896 10.8276 19 13.1339 12.0853 11.1581 20 13.5903 12.4622 11.4699 1 $1 - (1 + i)" PVA = i 9.4466 9.7632 10.0591 10.3356 10.5940 8.8514 8.3126 7.8237 9.1216 8.5436 8.0216 9.3719 8.7556 8.2014 9.6036 8.9501 8.3649 9.8181 9.1285 8.5136 7.3792 7.5488 7.7016 7.8393 7.9633 6.9740 7.1196 7.2497 7.3658 7.4694 6.6039 6.7291 6.8399 6.9380 7.0248 6.2651 6.3729 6.4674 6.5504 6.6231 5.6685 5.7487 5.8178 5.8775 5.9288 5.1624 5.2223 5.2732 5.3162 5.3527 4.7296 4.7746 4.8122 4.8435 4.8696