Problem Description: TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $208,000. In addition, delivery and installation costs will total $10,000. The machine has the capacity to produce 18,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be: 2010 5,400 dozen 2011 8,400 dozen 2012 12,750 dozen 2013 16,950 dozen 2014 18,000 dozen The caps have a contribution margin of $6.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the additional investment in working capital should be ignored. TopCap Co.'s cost of capital for this capacity expansion has been set at 14%. Instructions: Please proceed to the "Analysis" worksheet and complete the basic problem requirements. Complete the problem requirements by entering appropriate amounts or formulas in shaded worksheet cells: a. Calculate the net present value of the proposed investment in the new sewing machine. b. Calculate the present value ratio of the investment. c. What is the internal rate of return of this investment relative to the cost of capital? d. Calculate the payback period of the investment. Please fill in the excel sheet provided.

ACCOUNTING: What the Numbers Mean, 9e Chapter 16 Problem 16.26 Name: Enter Name General Spreadsheet Instructions: Step 1: Review General Spreadsheet Instructions Step 2: Complete the problem requirements by entering appropriate dollar amounts or formulas in "shaded" worksheet cells Review Problem 16.26 Worksheet Step 3: Complete Analysis Worksheet Step 4: Respond to "What the Numbers Mean" Worksheet ACCOUNTING: What the Numbers Mean, 9e Chapter 16 Problem 16.26 Name: Enter Name Problem Description: TopCap Co. is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $208,000. In addition, delivery and installation costs will total $10,000. The machine has the capacity to produce 18,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be: 2010 2011 2012 2013 2014 5,400 8,400 12,750 16,950 18,000 dozen dozen dozen dozen dozen The caps have a contribution margin of $6.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the additional investment in working capital should be ignored. TopCap Co.'s cost of capital for this capacity expansion has been set at 14%. Instructions: Please proceed to the "Analysis" worksheet and complete the basic problem requirements. Complete the problem requirements by entering appropriate amounts or formulas in shaded worksheet cells: a. b. c. d. Calculate the net present value of the proposed investment in the new sewing machine. Calculate the present value ratio of the investment. What is the internal rate of return of this investment relative to the cost of capital? Calculate the payback period of the investment. After completing the "Analysis" worksheet, please proceed to the "What the Numbers Mean" worksheet and respond to the additional requirements presented. ACCOUNTING: What the Numbers Mean, 9e Chapter 16 Problem 16.26 Name: Enter Name Complete the Modeling: a. Net Present Value Volume in Dozens Year 2010 2011 2012 2013 2014 Contribution Margin per Dozen Total Contribution Margin Present Value Factor @ 14% (Table 6-4) Present Value Present Value of Cash Inflows: Investment (machine cost, plus delivery and installation): Net Present Value: b. Profitability Index PI Present Value of Cash Inflows Investment c. Please see What the Numbers Mean Question 1 d. Payback Period Year 2010 2011 2012 2013 2014 Cash Inflow Cumulative Cash Inflow $- Cumulative Investment Unrecovered Investment $- - Payback Periods 1 2 3 4 5 Payback Period Analysis $1 $1 $1 $0 $0 $- 1 2 3 Column F 4 Column H 5 ACCOUNTING: What the Numbers Mean, 9e Chapter 16 Problem 16.26 Name: Enter Name What does it mean? Question 1: What is the internal rate of return of this investment relative to the cost of capital? What does it mean? Question 2: What does a positive net present value mean relative to the decision to invest in the new sewing machine? What does it mean? Question 3: How would the results of your analysis change if the sewing machine had a capacity to produce 15,000 dozen caps each year rather than the 18,000 dozen suggested in the problem description? What does it mean? Question 4: Using the payback period analysis chart at the bottom of the analysis worksheet, provide an interpretation of the payback period results