Verizon LTE 9:07 PM ezto.mheducation.com instructions help The Sweetwater Candy

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Verizon LTE 9:07 PM ezto.mheducation.com instructions help The Sweetwater Candy Company would like to buy a new machine that would automatically "dip-chocolates. The dipping operation is currently 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 nstallation. 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 realzes a contribution margin of $1.50 per box. A 20% rate of return is required on all investments. Click here to view Exhibit 138-1 and Exhibitl 13B-2, to determine the appropriate discount factoris) using tables Required What are the annual net cash inflows that will be provided by the new dipping machine? 2Compute the new machines net present value. (Any cash outflows should be indicated by a minus sign. Round discount factorís) to 3 decimal places and intermediate calculations to nearest dollar amount.) eeences eBook&Resources; Expanded table 3-02

Explanation / Answer

1 Redution in annual operating costs: Operating costs, present hand method 30000 Operating costs, new machine 7000 Annual savings in operating costs 23000 Increased annual contribution margin (6000 x $1.50) 9000 Total annual net cash inflows 32000 2 Now 1 2 3 4 5 Purchase of machine -120000 Annual net cash inflows 32000 32000 32000 32000 32000 Replacement parts -9000 Salvage value of machine 7500 Total cash flows -120000 32000 32000 23000 32000 39500 Discount factor (20%) 1.000 0.833 0.694 0.579 0.482 0.402 Present value -120000 26656 22208 13317 15424 15879 Net present value -26516

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