Net Present Value Method and Present Value Index

Diamond and Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 120 baseballs per hour to sewing 216 per hour. The contribution margin per unit is $0.52 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $19 per hour. The sewing machine will cost $238,500, have a six-year life, and will operate for 1,400 hours per year. The packing machine will cost $78,700, have a six-year life, and will operate for 1,200 hours per year. Diamond and Turf seeks a minimum rate of return of 12% on its investments.

Present Value of an Annuity of $1 at Compound Interest 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 12% 0.893 1.690 2.402 3.037 3.605 1590 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 Year 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 2 3 5 7 4.564 4.968 5.328 5.650 8 10 a. Determine the net present value for the two machines. Use the table of present values of an annuity of $1 above. Round to the nearest dollar Sewing Machine Packing Machine Present value of annual net cash flows Amount to be invested Net present value b. Determine the present value index for the two machines. If required, round your answers to two decimal places. Sewing Machine Packing Machine Present value index