The Sweetwater Candy Company would like to buy a new machine

that would automatically Ac?A?dipAc??? chocolates. The dipping operation is

currently 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 $10,200, including installation. After five

years, the machine could be sold for $5,000.

      The company estimates that

the cost to operate the machine will be $8,200 per year. The

present method of dipping chocolates costs $42,000 per year. In

addition to reducing costs, the new machine will increase

production by 4,000 boxes of chocolates per year. The company

realizes a contribution margin of $1.45 per box. A 10% rate of

return is required on all investments.

Replacement parts

Salvage value of machine

Total cash flows

Discount factor (10%)

Present Value

Net present Value