Steve Butters Posted July 28, 2011 Report Share Posted July 28, 2011 (edited) final two weeks of assignments and im not doing very well in this class....accounting is definitely a weak point for me....my grade could be teetering on this assignment lol....anyone able to help? you can PM me or something....maybe explain how this works?my accounting teacher from my first class is on here - but i dont know his s/n....maybe he will see this lolThe Sweetwater Candy Company would like to buy a new machine that would automatically "dip" chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $92,000. The manufacturer estimates that the machine would be usable for nine years but would require the replacement of several key parts at the end of the fifth year. These parts would cost $8,400, including installation. After nine years, the machine could be sold for $5,900. The company estimates that the cost to operate the machine will be $12,500 per year. The present method of dipping chocolates costs $43,000 per year. In addition to reducing costs, the new machine will increase production by 5,300 boxes of chocolates per year. The company realizes a contribution margin of $0.6 per box. A 16% rate of return is required on all investments. (Ignore income taxes.)To determine the appropriate discount factor(s) using tables, click here to view Exhibit 12B-1 and Exhibit 12B-2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using the factor in the problem.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. Use the incremental cost approach. 12b-1http://ezto.mhhmdemo.mcgraw-hill.com/servlet/TestPilot4/lazerwords/12532669500493800.tp4/exhibit12b-1.jpg12b-2http://ezto.mhhmdemo.mcgraw-hill.com/servlet/TestPilot4/lazerwords/12532669500493800.tp4/exhibit12b-2.jpgall i could figure out is that the machine costs 23k per year (initial cost + repairs + cost to operate - salvage value / 9 years).....previous costs were 43k per yearso 20k saved per year...then i did 5300 (new boxes) * .6 (cm) and got 3180so 23180 saved * 16% over 9 years which is 0.263 on the chart = 6096.34 for the annual cash inflow....but it says that answer isnt right...not sure what im doing wrong Edited July 28, 2011 by Steve Butters Quote Link to comment Share on other sites More sharing options...
pittsm Posted July 29, 2011 Report Share Posted July 29, 2011 I'll look at this tomorrow when I get back to work and have computer in front of me Quote Link to comment Share on other sites More sharing options...
Disclaimer Posted July 29, 2011 Report Share Posted July 29, 2011 Time value of money. Start by taking all values and turning them into npv or taking them all to some set future value (9 yrs).Compare npv's and calculate 16% roi threshold... Viola Quote Link to comment Share on other sites More sharing options...
jporter12 Posted July 29, 2011 Report Share Posted July 29, 2011 The answer is 2. Quote Link to comment Share on other sites More sharing options...
conn-e-rot Posted July 29, 2011 Report Share Posted July 29, 2011 288 Quote Link to comment Share on other sites More sharing options...
shittygsxr Posted July 29, 2011 Report Share Posted July 29, 2011 Jrmiii ≠ as stupid as he looks Quote Link to comment Share on other sites More sharing options...
jporter12 Posted July 29, 2011 Report Share Posted July 29, 2011 Jrmiii ≠ as stupid as he looksBut close. Very, very close! Quote Link to comment Share on other sites More sharing options...
Disclaimer Posted July 29, 2011 Report Share Posted July 29, 2011 If I was as dumb as I looked, I'd have trouble breathing.Luckily, using my brain pays the bills - not my oh-so-pretty face Quote Link to comment Share on other sites More sharing options...
goal12 Posted July 29, 2011 Report Share Posted July 29, 2011 Lurker comments: Excel is the way to go. Here's how I would tackle it. Q1. Make the columns years and the rows for line items. Line items will be costs and revenues (include cost savings as revenue). Then just fill it out and add it up for each year's cash flow. Q2. Think about the ROI and how you could use it as the discount factor. Follow the NPV calculation for each year's discounted cash flow. FYI:I'm not a Finance professor, but I did stay in a Holiday Inn Express last night. Quote Link to comment Share on other sites More sharing options...
Steve Butters Posted July 29, 2011 Author Report Share Posted July 29, 2011 (edited) giving this another shot.. Edited July 29, 2011 by Steve Butters Quote Link to comment Share on other sites More sharing options...
Steve Butters Posted July 29, 2011 Author Report Share Posted July 29, 2011 ok thanks guys....i got it figured out33,680 for annual income60700 for npvi was making the mistake by spreading out the cost of the machine, repairs, and salvage value over all 9 years Quote Link to comment Share on other sites More sharing options...
goal12 Posted July 29, 2011 Report Share Posted July 29, 2011 (edited) Often fell for that trick myself. Edited July 29, 2011 by goal12 Quote Link to comment Share on other sites More sharing options...
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