sed 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 $26 per hour. The sewing machine will cost $351,400, will have a 10-year life, and will operate for 1,400 hours per year. The packing machine will cost $148,100, will have a 10-year life, and will operate for 1,200 hours per year. Diamond & Turf seeks a minimum rate of return of 12% on its investments. Present Value of an Annuity of $1 at Compoun
Diamond & Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 120 baseballs per hour to sewing 216 per hour. The contribution margin per unit is $0.52 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 $26 per hour. The sewing machine will cost $351,400, will have a 10-year life, and will operate for 1,400 hours per year. The packing machine will cost $148,100, will have a 10-year life, and will operate for 1,200 hours per year. Diamond & Turf seeks a minimum
| Present Value of an Annuity of $1 at Compound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 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 |
$fill in the blank | $fill in the blank |
| Less amount to be invested | $fill in the blank | $fill in the blank |
| Net present value | $fill in the blank | $fill in the blank |
b. Determine the present value index for the two machines. If required, round your answers to two decimal places.
| Sewing Machine | Packing Machine | |
| Present value index | fill in the blank | fill in the blank |
c. If Diamond & Turf has sufficient funds for only one of the machines and qualitative factors are equal between the two machines, in which machine should it invest? (If both present value indexes are the same, either machine will grade as correct.)
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