Sweet Wave Bakery has a machine that is continuing to break down and requires constant maintenance. The operations manager is estimating that this machine has only 2 more years of life. The machine produces an average of 50 units per day at a cost of $6.50 per unit. The bakery is considering replacing this machine with a similar machine. The new machine would cost $55,000 with a 2 year life but could produce twice the production of the existing machine. The units sell for $8.50. Sweet Wave operates the line with this machine 260 days each year. The sales are equal to production on this line. Instructions: Given the information above, what are the consequences of Sweet Wave replacing the maching that is slowing down production because of breakdowns? Revenues (Retain): Sell price x units per day x 260 days x 2 years Production Costs (Retain): Cost per unit x units per day x 260 days x 2 years Revenues (Replace): Sell price x Units per day (x2) x 260 days x 2 years Production Costs (Replace): Cost per unit x Units per day (x2) x 260 days x 2 years

Sweet Wave Bakery has a machine that is continuing to break down and requires constant maintenance. The operations manager is estimating that this machine has only 2 more years of life. The machine produces an average of 50 units per day at a cost of $6.50 per unit. The bakery is considering replacing this machine with a similar machine. The new machine would cost $55,000 with a 2 year life but could produce twice the production of the existing machine. The units sell for $8.50. Sweet Wave operates the line with this machine 260 days each year. The sales are equal to production on this line. Instructions: Given the information above, what are the consequences of Sweet Wave replacing the maching that is slowing down production because of breakdowns? Revenues (Retain): Sell price x units per day x 260 days x 2 years Production Costs (Retain): Cost per unit x units per day x 260 days x 2 years Revenues (Replace): Sell price x Units per day (x2) x 260 days x 2 years Production Costs (Replace): Cost per unit x Units per day (x2) x 260 days x 2 years

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

A software provider buys blank Bluray DVDs at $550 per hundred and currently uses 2 million DVDs per year. The manager believes that it may be cheaper to make the DVDs rather than buy them. Direct production costs (labour, materials, fuel) are estimated at $2.50 per DVD. The equipment needed would cost $3 million. The equipment should last for 15 years, provided it is overhauled every 5 years at a cost of $250 000 each time. The operation will require additional current assets of S400 000. The company's required rate of return is 12 per cent. Evaluate the proposal using NPV formula and not excel.
A new furnace for your small factory is being installed right now, will cost $27,000, and will be completed in one year. At that point, it will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 2,400 gallons per year. Heating oil this year costs $3 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years from initial use, at which point it will need to be replaced and will have no salvage value. (Specifically, the firm pays for the furnace at time 0 and then reaps higher net cash flows from that investment at the end of years 1-20.) The discount rate is 8%. a. What is the net present value of the investment in the furnace? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What is the IRR? Note: Do not round…
Upper Hutt Bakery Warehouse uses specialized ovens to bake its bread. One oven costs $1,000,000 and lasts about 4 years before it needs to be replaced. The annual operating cost per oven is $10,000. What is the equivalent annual cost of an oven if the required rate of return is 15 percent? (Keep at least 3 decimal places in intermediate steps. Choose an answer that is closest to yours.)
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…
The Sweetwater Candy Company would like to buy a new machine that would automatically “dip” chocolates. The dipping operation currently is done largely by hand. The machine the company is considering costs $210,000. The manufacturer estimates that the machine would be usable for five years but would require the replacement of several key parts at the end of the third year. These parts would cost $11,300, including installation. After five years, the machine could be sold for $6,000. The company estimates that the cost to operate the machine will be $9,300 per year. The present method of dipping chocolates costs $53,000 per year. In addition to reducing costs, the new machine will increase production by 5,000 boxes of chocolates per year. The company realizes a contribution margin of $1.65 per box. A 19% rate of return is required on all investments. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What are…
A new furnace for your small factory is being installed right now, will cost $38,000, and will be completed in one year. At that point, it will require ongoing maintenance expenditures of $1,200 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,500 gallons per year. Heating oil this year costs $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years from initial use, at which point it will need to be replaced and will have no salvage value. (Specifically, the firm pays for the furnace at time 0 and then reaps higher net cash flows from that investment at the end of years 1 – 20.) The discount rate is 8%. What is the net present value of the investment in the furnace? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. What is the IRR? Note: Do not round…
Vijay
Wendell's Donut Shoppe is investigating the purchase of a new $50,100 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,900 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,600 dozen more donuts each year. The company realizes a contribution margin of $1.60 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 $17,225 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…
A new furnace for your small factory will cost $47,000 and a year to install, will require ongoing maintenance expenditures of $1,500 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 4,400 gallons per year. Heating oil this year will cost $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years, at which point it will need to be replaced and will have no salvage value. The discount rate is 8%. a. What is the net present value of the investment in the furnace? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) b. What is the IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What is the payback period? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is the…
Wendell's Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,500 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.60 per dozen donuts sold. The new machine would have a six-year useful life.
McSwing Inc. has decided to sell a new line of golf clubs. They will sell for $925 per set and have a variable cost of $480 per set. The company has determined that they will sell 75,000 units per year for the next 5 years. The fixed cost each year will be $14 million dollars. The company has to spend $1 million dollars on R&D for the club as a one time expense. The plant and equipment required will cost $50 million and will depreciate straight line to zero over five years. The expected salvage value of the plant and equipment is $3 million dollars. The new clubs will require an increase in net working capital of $3.5 million. The tax rate is 23% and the cost of capital is 14%. Calculate NPV. Based on this information, will you do the project?
Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is replaced. What is the equivalent annual cost of this machine if the required return is 9%? (Round your answer to whole dollars.)