Divine Candy Company is considering purchasing a second chocolatedipping machine in order to expand their business. The information Divinehas accumulated regarding the new machine is:Cost of the machine$150,000Increased contribution margin$25,000Life of the machine8yearsRequired rate of return4%Fantastic estimates they will be able to produce more candy using thesecond machine and thus increase their annual contribution margin. Theyalso estimate there will be a small disposal value of the machine but thecost of removal will offset that value. Ignore income tax issues in youranswers. Assume all cash flows occur at year-end except for initialinvestment amounts.1. Calculate the following for the new machine:a.b.Payback periodNetpresentvalue C.Discounted payback periodd.e.2Internal rate of return (using the interpolationmethod)Accrual accounting rate of return based on netinitial investment (assume straight-linedepreciation)What other factors should Divine Candyconsider in deciding whether to purchase thenew machine?

2. Other Factors to Consider Divine Candy Company should also consider the following…

Answered: Divine Candy Company is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 13P

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. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is: Cost of the machine $80,000 Increased annual contribution margin $15,000 Life of the machine 10 years Required rate of return 6% Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts. Q. Calculate the Internal rate of return (using the interpolation method) for the new machine
. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is: Cost of the machine $80,000 Increased annual contribution margin $15,000 Life of the machine 10 years Required rate of return 6% Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts. Q.Accrual accounting rate of return based on the net initial investment (assume straight-line depreciation)
. Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is: Cost of the machine $80,000 Increased annual contribution margin $15,000 Life of the machine 10 years Required rate of return 6% Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts. Q. Calculate the Net present value for the new machine
es Wendell's Donut Shoppe is investigating the purchase of a new $48,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,700 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine's internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine's internal rate of return? (Round your final answer to the nearest whole percentage.) 4. In addition to the…
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,000 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 221,000 Sales Price Per Unit $2.10 Variable Cost Per Unit $1.70 Contribution Margin Per Unit $0.40 %24 Fixed Costs $60,000 Break-Even (in units) 150,000 Break-Even (in dollars) $315,000 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $464,100 Variable Costs 375,700 Contribution Margin $88,400 Fixed Costs 60,000 Net Income (Loss) $28,400 C. What would your recommendation be to Flanders regarding this purchase? a. The new equipment will increase fixed costs substantially but net income will still…
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Mr. T Donut Shoppe is investigating the purchase of a new $31,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,300 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,300 dozen more donuts each year. The company predicts a contribution margin of $3.00 per dozen donuts sold. The new machine would have a six-year useful life. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What is the new machine's internal rate of return? Note: Round your final answer to the nearest whole percentage. 3. In addition to the data given previously, assume that the machine will have a $12,820 salvage value at the end of six years. Under these conditions, what is the internal rate of return? Note: Round your final answer to the nearest whole percentage. 1. Annual cash inflows…
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Charlie Corporation is considering buying a new donut maker. This machine will replace an old donut maker that still has a useful life of 6 years. The new machine will cost $3,650 a year to operate, as opposed to the old machine, which costs $3,925 per year to operate. Also, because of increased capacity, an additional 20,500 donuts a year can be produced. The company makes a contribution margin of $0.10 per donut. The old machine can be sold for $7,500 and the new machine costs $30,500. The incremental annual net cash inflows provided by the new machine would be (Ignore income taxes.): Multiple Choice $2,050 $275 $5,450 $2,325
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the IRR of the PJX5? (ROUND TO 2 DECIMAL PLACES.) a. The PJX5 will cost $1.79 million fully installed and has a 10 year life. It will be depreciated to a book value of $146,115.00 and sold for that amount in year 10. b. The Engineering Department spent $23,587.00 researching the various juicers. c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $16,144.00. d. The PJX5 will reduce operating costs by $310,064.00 per year. e. CSD’s marginal tax rate is 30.00%. f. CSD is 62.00% equity-financed. g. CSD’s 13.00-year, semi-annual pay, 6.37% coupon bond sells for $1,010.00. h. CSD’s stock currently has a market value of $21.43 and Mr. Bensen believes the market estimates…
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Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.10. The machine will increase fixed costs by $12,250 per year. The information they will use to consider these changes is shown here. A. What will the impact be on the break-even point if Flanders purchases the new machinery? Round per unit cost answers to two decimal places. Current New Machine Units Sold 214,000 fill in the blank 1 Sales Price Per Unit $2.15 $fill in the blank 2 Variable Cost Per Unit $1.70 $fill in the blank 3 Contribution Margin Per Unit $0.45 $fill in the blank 4 Fixed Costs $67,500 $fill in the blank 5 Break-Even (in units) 150,000 fill in the blank 6 Break-Even (in dollars) $322,500 $fill in the blank 7 B. What will the impact be on net operating income if Flanders purchases the new machinery? Current New Machine Sales $460,100 $fill in the blank 8 Variable Costs 363,800 fill in the blank 9 Contribution Margin…

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