The Sweetwater Candy Company would like to buy a new machine that would automatically dip chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $200,000. 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 $10,100, including installation. After five years, the machine could be sold for $9,000.

The company estimates that the cost to operate the machine will be $8,100 per year. The present method of dipping chocolates costs $41,000 per year. In addition to reducing costs, the new machine will increase production by 8,000 boxes of chocolates per year. The company realizes a contribution margin of $1.40 per box. A 20% rate of return is required on all investments.

Use Excel or spreadsheet to solve. Round answers to the nearest dollar.

Required:
1.	What are the annual net cash inflows that will be provided by the new dipping machine?

Reduction in annual operating costs:
Operating costs, present hand method	$76,322
Operating costs, new machine	83,282
Annual savings in operating costs	(6,960)
Increased annual contribution margin	7,373
Total annual net cash inflows	$413

2.	Compute the new machines net present value. (Any cash outflows should be indicated by a minus sign. Round final answers to the nearest whole dollar amount.)

	Now	1	2	3	4	5
Purchase of machine	$626	$8,383	$78,373	$83,832	$823,823	$2,727
Annual net cash inflows	3,232	7,373	2,020	98,282	7,373	123,192
Replacement parts	2,323	9,282	8,282	28,929	82,829	23,877
Salvage value of machine	2,323	2,828	8,372	8,282	9,292	8,383
Total cash flows	$8,504	$27,866	$97,047	$219,325	$923,317	$158,179
Net present value	$232,321