FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Diamond and Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 160 baseballs per hour to sewing 288 per hour. The contribution margin per unit is $0.48 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $28 per hour. The sewing machine will cost $287,000, have a five-year life, and will operate for 1,400 hours per year. The packing machine will cost $103,200, have a five-year life, and will operate for 1,200 hours per year. Diamond and Turf seeks a minimum
| Present Value of an Annuity of $1 at Compound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
a. Determine the net present value for the two machines. Use the table of present values of an annuity of $1 above. Round to the nearest dollar.
| Sewing Machine | Packing Machine | |
| Present value of annual net |
$fill in the blank 1 | $fill in the blank 2 |
| Amount to be invested | $fill in the blank 3 | $fill in the blank 4 |
| Net present value | $fill in the blank 5 | $fill in the blank 6 |
b. Determine the present value index for the two machines. If required, round your answers to two decimal places.
| Sewing Machine | Packing Machine | |
| Present value index | fill in the blank 7 | fill in the blank 8 |
c. If Diamond and Turf has sufficient funds for only one of the machines and qualitative factors are equal between the two machines, in which machine should it invest? (If both present value indexes are the same, either machine will grade as correct.)
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