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Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs $88,000 new. It would last the bakery for eighteen years but would require a $7,000 overhaul at the end of the fifteenth year. After eighteen years, the machine could be sold for $6,000. |
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The bakery estimates that it will cost $18,000 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $38,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 7,000 packages per year. The bakery realizes a contribution margin of $0.30 per package. The bakery requires a 13% return on all investments in equipment. (Ignore income taxes.) Don't use plagiarized sources. Get Your Custom Essay on
chapter 11 net cash inflows and net present value 420983
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1. What are the annual net cash inflows that will be provided by the new machine? 2. Compute the new machine’s net present value. Use the incremental cost approach. |
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