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takeAssignmentMain.do?invoker-assignments&takeAssignmentSessionLocator; assignment-take&inprogress; failse Print tem and Present Value Index 90% Equipment Company is considering an investment in one of two machines. The sewing machine will increase sewing 234 per hour. The contribution margin is $0.46 packing machine for the golf ball $280,400, have a seven-year life, and will per baseball. Assume that any increased production of basebals can be sold. The second machine is an automatic line. The packing machine will reduce hours per productivity from sewing 130 baseballs per hour to ne. The packing machine will reduce packing labor cost. The labor cost saved is equivelent to $19 per hour The sewing machine wil o operate for 1,400 hours per year. The packing machine will cost $91,000, have a seven-year life, and will operate for 1,200 hours Present Value of an Annuity of $1 at Compound on its Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.60s 3.353 2.991 4.917 4.355 4.111 3.78s 3.326 5.582 4.868 4564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.3606.145 5.650 5.019 4.192 for the two machines. Use the table of present values of an annuity of s1 above. Round to the nearestExplanation / Answer
Answer:
Calculation of annual net cash flow
Sewing Machine
=(234-130) x 0.46 x 1400 hour
=$66,976
Packing machine
=$19 x1200
=22800
Calculation of the present value of annual cash inflow
Sewing Machine
Packing Machine
Annual cash Inflow
66976
22800
Multiplied by
Present value factor at the rate of 10% for 7 years
4.868
4.868
Present value of annual net cash flows
326039.168
110990.4
Now we will find the net present value as under
Sewing Machine
Packing Machine
Present value of annual net cash flows
326039.168
110990.4
Less amount to be invested
280,400
91,000
Net present value
45,639
19,990
___________________________________________________________
2
Present value index for the two machine
= Present value of annual net cash flows / Investment
Sewing Machine
Packing Machine
Present value of annual net cash flows
326039.168
110990.4
Divided by
Investment
280400
91000
Present value index
1.163
1.220
_____________________________________________
3
MVP should invest in packing machine as its Present value index is higher
Sewing Machine
Packing Machine
Annual cash Inflow
66976
22800
Multiplied by
Present value factor at the rate of 10% for 7 years
4.868
4.868
Present value of annual net cash flows
326039.168
110990.4
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