X Company is considering the purchase of a new manchine. The new machine would r
ID: 2568903 • Letter: X
Question
X Company is considering the purchase of a new manchine. The new machine would reduce the amount of part-time labor, at a cost savings of $5,800 per year. In addition, the new machine would allow the company to produce a new product, resulting in the sale of 1,150 units with a contribution margin of $1.00 per unit. The new machine would cost $21,000, last for 6 years, and have a salvage value of $3,000. Assuming a discount rate of 5%, what is the net present value of the new machine? (Please show all steps)
Explanation / Answer
Statement showing Cash flows Particulars Time PVf 5% Amount PV Cash Outflows - 1.00 (21,000.00) (21,000.00) PV of Cash outflows = PVCO (21,000.00) Cash inflows = 5800 + 1150*1 1.00 0.9524 6,950.00 6,619.05 Cash inflows = 5800 + 1150*1 2.00 0.9070 6,950.00 6,303.85 Cash inflows = 5800 + 1150*1 3.00 0.8638 6,950.00 6,003.67 Cash inflows = 5800 + 1150*1 4.00 0.8227 6,950.00 5,717.78 Cash inflows = 5800 + 1150*1 5.00 0.7835 6,950.00 5,445.51 Cash inflows = 5800 + 1150*1 6.00 0.7462 6,950.00 5,186.20 Cash inflows - Salvage Value 6.00 0.7462 3,000.00 2,238.65 PV of Cash Inflows =PVCI 37,514.71 NPV= PVCI - PVCO 16,514.71
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