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 $$230,000.$ 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 $$10,400,$ including installation. After five years, the machine could be sold for $$7,500.$

The company estimates that the cost to operate the machine will be $$8,400$ per year. The present method of dipping chocolates costs

$$44,000$ per year. In addition to reducing costs, the new machine will increase production by $6,000$ boxes of chocolates per year. The

company realizes a contribution margin of $$1\mathrm{.}55$ per box. A $13\%$ rate of return is required on all investments.

Click here to view Exhibit $12$B$-1$ and Exhibit $12$B$-2,$ 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:

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.$)$

Compute the new machine's net present value.

Complete this question by entering your answers in the tabs below.

Required $2$

What are the annual net cash inflows that will be provided by the new dipping machine? The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then

sold the cars after three years of use. The company's present fleet of cars is three years old and will be sold very shortly. To provide a

replacement fleet, the company is considering two alternatives:

Purchase alternative: The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be

needed, which can be purchased at a discounted price of $$21,000$ each. If this alternative is accepted, the following costs will be

incurred on the fleet as a whole:

At the end of three years, the fleet could be sold for one$-$half of the original purchase price.

Lease alternative: The company can lease the cars under a three$-$year lease contract. The lease cost would be $$56,000$ per year $($the

first payment due at the end of Year $1).$ As part of this lease cost, the owner would provide all servicing and repairs, license the cars,

and pay all the taxes. Riteway would be required to make a $$13,500$ security deposit at the beginning of the lease period, which would

be refunded when the cars were returned to the owner at the end of the lease contract.

Riteway Ad Agency's required rate of return is $15\%.$

Click here to view Exhibit $12$B$-1$ and Exhibit $12$B$-2,$ 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:

What is the net present value of the cash flows associated with the purchase alternative?

What is the net present value of the cash flows associated with the lease alternative?

Which alternative should the company accept?