Diamond & Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 150 baseballs per hour to sewing 290 per hour. The contribution margin per unit is $0.32 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $21 per hour. The sewing machine will cost $260,000, have an 8-year life, and will operate for 1,800 hours per year. The packing machine will cost $85,000, have an 8-year life, and operate for 1,400 hours per year. Diamond & Turf seeks a minimum rate of return of 15% on its investments. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.833 2 1.833 1.736 1.528 3 2.673 2.487 2.106 1.690 2.402 0.870 1.626 2.283

Diamond & Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 150 baseballs per hour to sewing 290 per hour. The contribution margin per unit is $0.32 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $21 per hour. The sewing machine will cost $260,000, have an 8-year life, and will operate for 1,800 hours per year. The packing machine will cost $85,000, have an 8-year life, and operate for 1,400 hours per year. Diamond & Turf seeks a minimum rate of return of 15% on its investments. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.833 2 1.833 1.736 1.528 3 2.673 2.487 2.106 1.690 2.402 0.870 1.626 2.283

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Hh1.

Diamond & Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 150 baseballs per hour to sewing 290 per
hour. The contribution margin per unit is $0.32 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing
machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $21 per hour. The sewing machine will cost $260,000,
have an 8-year life, and will operate for 1,800 hours per year. The packing machine will cost $85,000, have an 8-year life, and operate for 1,400 hours per year. Diamond & Turf
seeks a minimum rate of return of 15% on its investments.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.870
0.833
1.626
1.528
2.283
2.855
3.353
3.785
2
3
4
5
6
7
8
9
10
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
4.160
4.487
4.772
5.019
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192

a. Determine the net present value for the two machines. Use the table of present values of an annuity of $1 above. Round to the nearest dollar.
Sewing Machine Packing Machine
Present value of annual net cash flows
Amount to be invested
$
$
Net present value
b. Determine the present value index for the two machines. Round to two decimal places.
Sewing Machine
Packing Machine
Present value index
$

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