Question

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 $9,300, including Installation. After five years, the machine could be sold for $4,000. The company estimates that the cost to operate the machine will be $7,300 per year. The present method of dipping chocolates costs $33,000 per year. In addition to reducing costs, the new machine will increase production by 2,000 boxes of chocolates per year. The company realizes a contribution margin of $1.00 per box. A 16% rate of return is required on all investments. Click here to view Exhibit 7B-1 and Exhibit 7B-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 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

Answer 1

Answer-2 Answer-1 Annual Cash flow by installing new machine Year Initail cost Operarting cost of Machine sales prices after 5 year Present method cost saving Increase production margin PV Factor @16% (B) Net present Value @16% (A*B) (A) -120000 1 2 3 -7300 -7300 -7300 -7300 -7300 -9300 33000 33000 33000 33000 33000 -120000 27700 27700 18400 27700 31700 2000 2000 2000 20001 2000 0.862069 0.743163 0.640658 0.552291 0.476113 -1,20,000 23,879 20,586 11,788 15,298 15,093 -33,356 NetPesent value 4000