The Sweetwater Candy Company would like to buy a new machine for $220,000 that automatically "dips" chocolates. Themanufacturer estimates the machine would be usable for five years but would require replacement of several key parts costing$10,300 at the end of the third year. After five years, the machine could be sold for $6,000.The company estimates the cost to operate the machine will be $8,300 per year. The present labor-intensive method of dippingchocolates costs $43,000 per year. In addition to reducing costs, the new machine will increase production by 5,000 boxes ofchocolates per year. The company realizes a contribution margin of $1.50 per box. A 15% rate of return is required on all investments.Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.Required:1. What are the annual net cash inflows provided by the new dipping machine?2. Compute the new machine's net present value.

Answer-1Operating cost of old method = $43,000Operating cost of new machine = $8,300Annual savings…

Answered: The Sweetwater Candy Company would like…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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…
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