Question Details
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.
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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
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DATE ANSWEREDDec 08, 2020
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