Burger Botanicals produces a wide range of herbal supplements sold nationwide th

Question

Burger Botanicals produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year-old machine currently in use. The new machine will cost $171,300, and installation will require an additional $3,175. The machine has a useful life of 10 years and is expected to have a salvage value of $3,870 at that time. The variable cost to operate the new machine is $11.20 per carton compared to the current machine’s variable cost of $11.26 per carton, and Burger expects to pack 254,000 cartons each year. If the new machine is purchased, Burger will avoid a required $11,050 overhaul of the current machine in three years. The current machine has a market value of $12,850. Identify the amount and timing of all cash flows related to the acquisition of the new packaging machine. (Enter negative amounts using a negative sign preceding the number e.g. -45.) Cash Flow Timing Amount Purchase price $ Installation Salvage of old equipment Salvage of new equipment Variable cost savings Avoided overhaul

Explanation / Answer

Statement showing the amount and the timing of all the cash Flow of Burger botanics SNO Year Particulars Amount(in $) A 0 Cost of new machine -171,300 B 0 Additional installation cost of new machine -3,175 C 0 sales of old machine 12,850 D 1-3 savings in overhaul cost of old machine 11,050 E 1-10 saving in variable cost(254000*(11.26-11.20)) 15,240 F 10 salvage value of new machine 3,870

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