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.Accrual accounting rate of return based on the net initial investment (assume straight-line depreciation)
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