Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Monty Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company
Monty Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year-old machine currently in use. The new machine will cost $162,550, and installation will require an additional $2,975. The machine has a useful life of 10 years and is expected to have a salvage value of $4,115 at that time. The variable cost to operate the new machine is $10.15 per carton compared to the current machine's variable cost of $10.25 per carton, and Monty Vita expects to pack 246,000 cartons each year. If the new machine is purchased, Monty Vita will avoid a required $10,175 overhaul of the current machine in four years. The current machine has a market value of $12,325. Click here to view the factor table. (a) Calculate the net present value of the new packaging machine. Assume that Monty Vita uses an 8% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 2 decimal places, e.g. 58,971.75. Enter negative amount using a negative sign preceding the number, e.g. 59,991 or parentheses e.g. (59,991).) Net present value (b) Do you recommend that Monty Vita purchase the new machine? (c) Assume that Monty Vita has adopted a new 12\% discount rate. Calculate the net present value of the new packaging machine. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 2 decimal places, e.g. 58,971.75. Enter negative amount using a negative sign preceding the number, e.g. 59,991 or parentheses e.g. (59,991).) Net present value $ Do you recommend that Monty Vita purchase the new machine
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started