Whispering Winds Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $ 108,000 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 $ 8,000 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 Whispering Winds Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $ 143,000 and would cost S$ 15,000 per year to operate. Whispering Winds Pix's current machine costs only $ 8,000 per year to operate. If Whispering Winds 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. Whispering Winds Pix uses straight-line depreciation. 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 0 decimal place, e.g. 58,971.)
Whispering Winds Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $ 108,000 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 $ 8,000 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 Whispering Winds Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $ 143,000 and would cost S$ 15,000 per year to operate. Whispering Winds Pix's current machine costs only $ 8,000 per year to operate. If Whispering Winds 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. Whispering Winds Pix uses straight-line depreciation. 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 0 decimal place, e.g. 58,971.)
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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Transcribed Image Text:Whispering Winds Pix currently uses a six-year-old molding machine to manufacture
silver picture frames. The company paid $ 108,000 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 $ 8,000 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
Whispering Winds Pix to increase production and sales to 20,000 frames per year.
The machine, which has a ten-year life, sells for $ 143,000 and would cost $ 15,000
per year to operate. Whispering Winds Pix's current machine costs only $ 8,000 per
year to operate. If Whispering Winds 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. Whispering Winds Pix
uses straight-line depreciation.
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 0 decimal place, e.g. 58,971.)
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%.)
Calculate the new machine's payback period. (Round answer to 2 decimal places, e.g.
1.25.)
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