The Sweetwater Candy Company would like to buy a new machine for $260,000 that automatically "dips" chocolates. The manufacturer estimates the machine would be usable for five years but would require replacement of several key parts costing $10,700 at the end of the third year. After five years, the machine could be sold for $10,000. The company estimates the cost to operate the machine will be $8,700 per year. The present labor-intensive method of dipping chocolates costs $47,000 per year. In addition to reducing costs, the new machine will increase production by 9,000 boxes of chocolates per year. The company realizes a contribution margin of $1.70 per box. A 16% 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.
The Sweetwater Candy Company would like to buy a new machine for $260,000 that automatically "dips" chocolates. The manufacturer estimates the machine would be usable for five years but would require replacement of several key parts costing $10,700 at the end of the third year. After five years, the machine could be sold for $10,000. The company estimates the cost to operate the machine will be $8,700 per year. The present labor-intensive method of dipping chocolates costs $47,000 per year. In addition to reducing costs, the new machine will increase production by 9,000 boxes of chocolates per year. The company realizes a contribution margin of $1.70 per box. A 16% 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A10 please help......
Transcribed Image Text:The Sweetwater Candy Company would like to buy a new machine for $260,000 that automatically "dips" chocolates. The
manufacturer estimates the machine would be usable for five years but would require replacement of several key parts costing
$10,700 at the end of the third year. After five years, the machine could be sold for $10,000.
The company estimates the cost to operate the machine will be $8,700 per year. The present labor-intensive method of dipping
chocolates costs $47,000 per year. In addition to reducing costs, the new machine will increase production by 9,000 boxes of
chocolates per year. The company realizes a contribution margin of $1.70 per box. A 16% 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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education