Doughboy Bakery would like to buy a new machine for putting icing and other topp

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Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs $90,000 new. It would last the bakery for nine years but would require a $6,500 overhaul at the end of the sixth year. After nine years, the machine could be sold for $5,000.

      The bakery estimates that it will cost $20,000 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $40,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 4,000 packages per year. The bakery realizes a contribution margin of $0.50 per package. The bakery requires a 10% return on all investments in equipment. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

What are the annual net cash inflows that will be provided by the new machine?

Compute the new machine's net present value. Use the incremental cost approach. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

Blinko Products wants an airplane for use by its corporate staff. The airplane that the company wishes to acquire, a Zephyr II, can be either purchased or leased from the manufacturer. The company has made the following evaluation of the two alternatives:

Purchase alternative. If the Zephyr II is purchased, then the costs incurred by the company would be as follows:

The plane would be sold after five years. Based on current resale values, the company would be able to sell it for about one-half of its original cost at the end of the five-year period.

Lease alternative. If the Zephyr II is leased, then the company would have to make an immediate deposit of $60,000 to cover any damage during use. The lease would run for five years, at the end of which time the deposit would be refunded. The lease would require an annual rental payment of $188,000 (the first payment is due at the end of Year 1). As part of this lease cost, the manufacturer would provide all servicing and repairs, license the plane, and pay all taxes. At the end of the five-year period, the plane would revert to the manufacturer, as owner.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Use the total-cost approach to determine the present value of the cash flows associated with purchase alternative. (Outflows should be indicated with a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

Use the total-cost approach to determine the present value of the cash flows associated with lease alternative. (Outflows should be indicated with a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs $90,000 new. It would last the bakery for nine years but would require a $6,500 overhaul at the end of the sixth year. After nine years, the machine could be sold for $5,000.

      The bakery estimates that it will cost $20,000 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $40,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 4,000 packages per year. The bakery realizes a contribution margin of $0.50 per package. The bakery requires a 10% return on all investments in equipment. (Ignore income taxes.)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

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