Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business....

Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information StupendousStupendous has accumulated regarding the new machine is:

Cost of the machine	$110,000
Increased contribution margin	$17,000
Life of the machine	10 years
Required rate of return	6%

StupendousStupendous estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.

Calculate the following for the new machine:
	a.	Net present value
	b.	Payback period
	c.	Discounted payback period
	d.	Internal rate of return (using the interpolation method)
	e.	Accrual accounting rate of return based on net initial investment (assume straight-line depreciation)
2.	What other factors should StupendousStupendous Candy consider in deciding whether to purchase the new machine?

Expert Solution

Please find below table useful to compute desired results: -

End results would be as follows: -

ekkarill92 answered 1 year ago

A company is considering purchasing a new second machine in order to expand their business. The...

A company is considering purchasing a new second machine in order to expand their business. The information for the new machine is: Cost= $100,000 Increase in contribution margin= $25,000 Life of the machine= 5 years Required rate of return = 10% Calculate the following: a. Net present value (NPV) (Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the...

A company is considering purchasing a special machine to expand one of its production lines. The...

A company is considering purchasing a special machine to expand one of its production lines. The machine costs $1,000,000 and has an estimated service life of 3-years. Annual after-tax revenues are expected to be $430,000 and the salvage value of the machine at the end of the third year, could be $40,000. To maximize its ROI, the company is considering borrowing the full purchase amount from a local bank at 12% annual interest, instead of funding the purchase from its...

In order to expand its bottled water business, a local company is considering the acquisition of...

In order to expand its bottled water business, a local company is considering the acquisition of additional equipment. It plans to buy the equipment. The total cost of the equipment (as one initial payment at the beginning of the project) is $200,500. During the time span of its use, the equipment is expected to produce net cash inflows of $67,000 each year. The equipment is expected to be used for 4 years, then re-sold in the used-equipment market for $25,000....

Please show work 17. Candy Company paid $150,000 for a machine used to produce chocolate. The...

Please show work 17. Candy Company paid $150,000 for a machine used to produce chocolate. The annual contribution margin from chocolate sales is $75,000. The machine could be sold for $90,000. The opportunity cost of producing the chocolate is ________. A) $20,000 B) $60,000 C) $85,000 D) $90,000 19. Miguel Company manufactures a part for its production cycle. The annual costs per unit for 5,000 units of the part are as follows: Per Unit Direct materials $3.00 Direct labor 5.00...

Candy Company produces a dark chocolate candy bar. Recently, the company adopted the following standards for...

Candy Company produces a dark chocolate candy bar. Recently, the company adopted the following standards for one bar of the candy: Direct Materials (5.5 oz. @ $0.22) $1.21 Direct Labor (0.15 hours @ $10.00) $1.50 Standard Prime Cost $2.71 During the first week of operation, the company experienced the following actual results: Bars produced: 150,000. Ounces of direct materials purchased: 823,600 ounces at $0.23 per ounce. There are no beginning or ending inventories of direct materials. Direct Labor: 23,200 hours...

A company is considering purchasing a new machine that would cost $60,000 and the machine would...

A company is considering purchasing a new machine that would cost $60,000 and the machine would be depreciated (straight line) down to $0 over its four year life. At the end of four years it is believed that the machine could be sold for $12,000. The machine would increase EBDT by $42,000 annually. the company's marginal tax rate is 34%. What the RATFCF’s associated with the purchase of this machine? $31,800 $32,820 $30,452 $29,940

Case Study Hershee’s Chocolates makes an assortment of chocolate candy and candy novelties. The company has...

Case Study Hershee’s Chocolates makes an assortment of chocolate candy and candy novelties. The company has six in-city stores, five stores in major metropolitan airports, and a small mail order branch. Hershee’s has a small, computerized information system that tracks inventory in its plant, helps schedule production, and so on, but this system is not tied directly into any of its retail outlets. The mail order system is handled manually. Recently, several Hershee’s stores experienced a rash of complaints from...

The BoomBoom Chemical Company is considering purchasing a new production machine. The machine has a cost...

The BoomBoom Chemical Company is considering purchasing a new production machine. The machine has a cost of $250,000 and would cost an additional $10,000 after-tax to install. If purchases, the machine will increase earnings before interest and tax by $70,000 per annum. To operate effectively, raw material inventory would need to be increased by $10,000. The machine has an expected life of 10 years and no salvage value. It will be depreciated straight line (prime cost) over its 10 year...

"The Simon Machine Tools Company is considering purchasing a new set of machine tools to process...

"The Simon Machine Tools Company is considering purchasing a new set of machine tools to process special orders. The following financial information is available. - Without the project, the company expects to have a taxable income of $487,000 each year from its regular business over the next three years. - With the three-year project, the purchase of a new set of machine tools at a cost of $54,000 is required. The equipment falls into the MACRS three-year class. The tools...

Cost of Production Report Venus Chocolate Company processes chocolate into candy bars. The process begins by...

Cost of Production Report Venus Chocolate Company processes chocolate into candy bars. The process begins by placing direct materials (raw chocolate, milk, and sugar) into the Blending Department. All materials are placed into production at the beginning of the blending process. After blending, the milk chocolate is then transferred to the Molding Department, where the milk chocolate is formed into candy bars. The following is a partial work in process account of the Blending Department at March 31, 2016: ACCOUNT...

Question