question 1

Swifty 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 $171,300, and installation will require an additional $3,175. The machine has a useful life of 10 years and is expected to have a salvage value of $3,870 at that time. The variable cost to operate the new machine is $11.20 per carton compared to the current machine's variable cost of $11.26 per carton, and Swifty Vita expects to pack 254,000 cartons each year. If the new machine is purchased, Swifty Vita will avoid a required $11,050 overhaul of the current machine in four years. The current machine has a market value of $12,850. Identify the amount and timing of all cash flows related to the acquisition of the new packaging machine. (Enter negative amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Flow Timing Amount Purchase price Year o -171300 Installation Year o -3175 Salvage of old equipment Year 12850 Salvage of new equipment Year 10 Variable cost savings Years 1-10 4 Avoided overhaul Year 4