The Sweetwater Candy Company would like to buy a new machine that would automati

Question

The Sweetwater Candy Company would like to buy a new machine that would automatically "dip" chocolates. Tire dipping operation is currency done largely by hand. The machine the company is considering costs $125,000. The manufacturer estimates that the machine would be usable for 10 years. After 10 years, the machine could be sold for $7, 500 The company estimates that the cost to operate the machine will $7,000 per year. The present method of dipping chocolates costs $30.000 per year. In addition to reducing costs, re new machine will increase production by 6.000 boxes of chocolates per year. The company realizes a contribution margin of $1.50 per box a 20% rate of return is required on all investments. (ignore income taxes.) Solve this Question using your financial calculator or Excel. NOT the tables In the chapter. What are the annual net cash inflows that will be provided by the new dipping machine? (Omit the "s" sign in your response.) Annual net cash inflows $ Compute the new machine's net present value. (Round your answer to the nearest dollar amount. Omit the "S" sign in your response.) Net present value $

Explanation / Answer

Annual net cash inflow = saving in cost + additional contribution (30000-7000)+(6000*1.5) $    32,000.00 NPV of machine = -125000+32000(PVIF, 20%, 10) + 7500(1+0.2)^-10 125000+32000*(4.19)+7500*(0.1615) $    10,291.25

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