TopCap Company is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $122,000. In addition, delivery and installation costs will total $5,000. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. Note: Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals. 2022 2023 2024 2025 2026 3,600 dozen 5,600 dozen 8,500 dozen 11,300 dozen 12,000 dozen The caps have a contribution margin of $8.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the investment in working capital should be ignored. TopCap Company's cost of capital for this capacity expansion has been set at 14%.

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
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Required:
a. Calculate the net present value of the proposed investment in the new sewing
machine.
b. Calculate the present value ratio of the investment.
c. What is the internal rate of return of this investment relative to the cost of capital?
d. Calculate the payback period of the investment.
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C Required D
Calculate the net present value of the proposed investment in the new sewing machine.
Note: Negative amounts should be indicated by a minus sign. Round intermediate calcula
Net present value
Transcribed Image Text:Required: a. Calculate the net present value of the proposed investment in the new sewing machine. b. Calculate the present value ratio of the investment. c. What is the internal rate of return of this investment relative to the cost of capital? d. Calculate the payback period of the investment. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Calculate the net present value of the proposed investment in the new sewing machine. Note: Negative amounts should be indicated by a minus sign. Round intermediate calcula Net present value
TopCap Company is evaluating the purchase of another sewing machine that will be
used to manufacture sport caps. The invoice price of the machine is $122,000. In
addition, delivery and installation costs will total $5,000. The machine has the
capacity to produce 12,000 dozen caps per year. Sales are forecast to increase
gradually, and production volumes for each of the five years of the machine's life are
expected to be as follows: Use Table 6-4.
Note: Use appropriate factor(s) from the tables provided. Round the PV factors to
4 decimals.
2022
2023
2024
2025
2026
3,600 dozen
5,600 dozen
8,500 dozen
11,300 dozen
12,000 dozen
The caps have a contribution margin of $8.00 per dozen. Fixed costs associated with
the additional production (other than depreciation expense) will be negligible.
Salvage value and the investment in working capital should be ignored. TopCap
Company's cost of capital for this capacity expansion has been set at 14%.
Transcribed Image Text:TopCap Company is evaluating the purchase of another sewing machine that will be used to manufacture sport caps. The invoice price of the machine is $122,000. In addition, delivery and installation costs will total $5,000. The machine has the capacity to produce 12,000 dozen caps per year. Sales are forecast to increase gradually, and production volumes for each of the five years of the machine's life are expected to be as follows: Use Table 6-4. Note: Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals. 2022 2023 2024 2025 2026 3,600 dozen 5,600 dozen 8,500 dozen 11,300 dozen 12,000 dozen The caps have a contribution margin of $8.00 per dozen. Fixed costs associated with the additional production (other than depreciation expense) will be negligible. Salvage value and the investment in working capital should be ignored. TopCap Company's cost of capital for this capacity expansion has been set at 14%.
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