Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Sweetwater Candy Company would like buy a new machine that would automatically dip chocolates. The dipping operation currently is done largely by hand. The

The Sweetwater Candy Company would like buy a new machine that would automatically "dip" chocolates. The dipping operation currently is done largely by hand. The machine the company is considering costs $220,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $10,300, including installation. After five years, the machine could be sold for $6,000. The company estimates that the cost to operate the machine will be $8,300 per year. The present method of dipping chocolates costs $43,000 per year. In addition to reducing costs, the new machine will increase production by 5,000 boxes of chocolates per year. The company realizes a contribution margin of $1.50 per box. A 15% rate of return is required on all investments. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. (Use the tables to get your discount factors. The linked tables are the same tables as the ones in your course packet. If you calculate discount factors using Excel or a financial calculator, your answer may be different enough due to rounding that the system will mark it wrong.) Required: 1. What are the annual net cash inflows that will be provided by the new dipping machine? (Hint: This is asking for the incremental change in the (undiscounted) yearly cash flows if they buy the machine.) 2. Compute the new machine's net present value. Complete this question by entering your answers in the tabs below. Required 1 Required 2 What are the annual net cash inflows that will be provided by the new dipping machine? Total annual net cash inflows Required 1 Required 2 > The Sweetwater Candy Company would like to buy a new machine that would automatically "dip" chocolates. The dipping operation currently is done largely by hand. The machine the company is considering costs $220,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $10,300, including installation. After five years, the machine could be sold for $6,000. The company estimates that the cost to operate the machine will be $8,300 per year. The present method of dipping chocolates costs $43,000 per year. In addition to reducing costs, the new machine will increase production by 5,000 boxes of chocolates per year. The company realizes a contribution margin of $1.50 per box. A 15% rate of return is required on all investments. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. (Use the tables to get your discount factors. The linked tables are the same tables as the ones in your course packet. If you calculate discount factors using Excel or a financial calculator, your answer may be different enough due to rounding that the system will mark it wrong.) Required: 1. What are the annual net cash inflows that will be provided by the new dipping machine? (Hint: This is asking for the incremental change in the (undiscounted) yearly cash flows if they buy the machine.) 2. Compute the new machine's net present value. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the new machine's net present value. (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.). Net present value

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intelligent Accountant Strategies Concepts And Ideas To Transform Your Practice

Authors: Darren Gleeson

1st Edition

1925515575, 978-1925515572

More Books

Students also viewed these Accounting questions

Question

How does net working capital affect the cash flows of a project?

Answered: 1 week ago

Question

=+Are the contracts enforceable?

Answered: 1 week ago