Problem 12-22 Net Present Value Analysis [LO12-2]
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 $190,000. 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 $11,100, including installation. After five years, the machine could be sold for $8,000.
The company estimates that the cost to operate the machine will be $9,100 per year. The present method of dipping chocolates costs
$51,000 per year. In addition to reducing costs, the new machine will increase production by 7,000 boxes of chocolates per year. The
company realizes a contribution margin of $1.55 per box. A 21% rate of return is required on all investments.
Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables.
Required:
1. What are the annual net cash inflows that will be provided by the new dipping machine?
2. Compute the new machine's net present value.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
What are the annual net cash inflows that will be provided by the new dipping machine?
Total annual net cash inflows
