Question
Splendid Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Splendid has accumulated regarding the
Splendid Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Splendid has accumulated regarding the new machine is: (Click the icon to view the information.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements Data table Requirements Requirement 1. C Cost of the machine $110,000 a. Net present val Increased contribution margin $20,000 Life of the machine The net present v Required rate of return 10 years 8% Splendid estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts. ve net pres 1. Calculate the following for the new machine: a. Net present value b. Payback period c. Discounted payback period d. Internal rate of return (using the interpolation method) e. Accrual accounting rate of return based on net initial investment (assume straight-line depreciation) 2. What other factors should Splendid Candy consider in deciding whether to purchase the new machine? Print Done Print Done
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