Sheffield Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $105,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $11,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 15,000 frames per year, generating a total contribution margin of $102,000. Martson Molders currently sells a molding machine that will allow Sheffield Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $140,000 and would cost $15,000 per year to operate. Sheffield Pix's current machine costs only $8,000 per year to operate. If Sheffield Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $20,000 at the end of its ten-year life. Sheffield Pix uses straight-line depreciation. Click here to view the factor table. (a) Calculate the new machine's net present value assuming a 16% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.) Net present value $
Sheffield Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $105,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $11,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 15,000 frames per year, generating a total contribution margin of $102,000. Martson Molders currently sells a molding machine that will allow Sheffield Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $140,000 and would cost $15,000 per year to operate. Sheffield Pix's current machine costs only $8,000 per year to operate. If Sheffield Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $20,000 at the end of its ten-year life. Sheffield Pix uses straight-line depreciation. Click here to view the factor table. (a) Calculate the new machine's net present value assuming a 16% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.) Net present value $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject: acounting
Transcribed Image Text:Sheffield Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $105,000 for
the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a
$11,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company
currently produces and sells 15,000 frames per year, generating a total contribution margin of $102,000.
Martson Molders currently sells a molding machine that will allow Sheffield Pix to increase production and sales to 20,000 frames
per year. The machine, which has a ten-year life, sells for $140,000 and would cost $15,000 per year to operate. Sheffield Pix's
current machine costs only $8,000 per year to operate. If Sheffield Pix purchases the new machine, the old machine could be sold at
its book value of $5,000. The new machine is expected to have a salvage value of $20,000 at the end of its ten-year life. Sheffield Pix
uses straight-line depreciation.
Click here to view the factor table.
(a)
Calculate the new machine's net present value assuming a 16% discount rate. (For calculation purposes, use 4 decimal places as
displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.)
Net present value $
Transcribed Image Text:Use Excel or a similar spreadsheet application to calculate the new machine's internal rate of return. (Round answer to 2 decimal
places, e.g. 1.25%.)
(c).
Internal rate of return
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Payback period
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Calculate the new machine's payback period. (Round answer to 2 decimal places, e.g. 1.25.)
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