Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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 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 $120,000. 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 $9,000, 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 $7,000 per year. The present method of dipping chocolates costs $30,000 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 $1.50 per box. A 20% rate of return is required on all investments.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What are the annual net cash inflows that will be provided by the new dipping machine?
2. Compute the new machines net present value.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started