Question

The Sweetwater Candy Company would like to buy a new machine that would automatically “dip” chocolates. The dipping operation currently is 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 $9,300, including installation. After five years, the machine could be sold for $4,000.

The company estimates that the cost to operate the machine will be $7,300 per year. The present method of dipping chocolates costs $33,000 per year. In addition to reducing costs, the new machine will increase production by 2,000 boxes of chocolates per year. The company realizes a contribution margin of $1.00 per box. A 16% rate of return is required on all investments.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

**Required:**

1. What are the annual net cash inflows that will be provided by the new dipping machine?

2. Compute the new machine’s net present value.

Answer #1

1)

Discount Factor taken from NPV tables @ 16%

Present values=Total Cash Flows*Discount Factor

Net Present Value=sum of present values

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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 $210,000. 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 $11,300, including installation. After five
years, the machine could be sold for $6,000.
The company...

The Sweetwater Candy Company would like to buy a new machine
that would automatically “dip” chocolates. The dipping operation
currently is done largely by hand. The machine the company is
considering costs $230,000. 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 $10,400, including installation. After five
years, the machine could be sold for $7,500.
The company...

The Sweetwater Candy
Company would like to buy a new machine that would automatically
“dip” chocolates. The dipping operation currently is done largely
by hand. The machine the company is considering costs $260,000. 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 $10,700, including
installation. After five years, the machine could be sold for
$10,000.
The company...

The Sweetwater Candy Company would like to buy a new machine
that would automatically “dip” chocolates. The dipping operation
currently is done largely by hand. The machine the company is
considering costs $200,000. 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 $11,200, including installation. After five
years, the machine could be sold for $9,000.
The company...

The Sweetwater Candy Company would like to buy a new machine
that would automatically “dip” chocolates. The dipping operation
currently is done largely by hand. The machine the company is
considering costs $230,000. 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 $10,400, including installation. After five
years, the machine could be sold for $7,500.
The company...

The Sweetwater Candy Company would like to buy a new machine
that would automatically “dip” chocolates. The dipping operation
currently is done largely by hand. The machine the company is
considering costs $230,000. 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 $11,500, including installation. After five
years, the machine could be sold for $8,000.
The company...

The Sweetwater Candy Company would like to buy a new machine
that would automatically “dip” chocolates. The dipping operation
currently is done largely by hand. The machine the company is
considering costs $240,000. 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 $10,500, including installation. After five
years, the machine could be sold for $8,000.
The company...

A candy Company would like to buy a new machine that would
automatically “dip” chocolates. The dipping operation currently is
done largely by hand. The machine the company is considering costs
$200,000. 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
$10,100, including installation. After five years, the machine
could be sold for $9,000.
The company estimates...

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 $230,000. 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 $10,400, including installation. After five
years, the machine could be sold for $7,500. The company...

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 $210,000. 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 $11,300, including installation. After five
years, the machine could be sold for $6,000.
The company...

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