Whispering Winds Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $ 108,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $ 8,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 15,000 frames per year, generating a total contribution margin of $ 102,000. Martson Molders currently sells a molding machine that will allow Whispering Winds Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $ 143,000 and would cost S$ 15,000 per year to operate. Whispering Winds Pix's current machine costs only $ 8,000 per year to operate. If Whispering Winds Pix purchases the new machine, the old machine could be sold at its book value of $ 5,000. The new machine is expected to have a salvage value of $ 20,000 at the end of its ten-year life. Whispering Winds Pix uses straight-line depreciation. Calculate the new machine's net present value assuming a 16 % discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)
Whispering Winds Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $ 108,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $ 8,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 15,000 frames per year, generating a total contribution margin of $ 102,000. Martson Molders currently sells a molding machine that will allow Whispering Winds Pix to increase production and sales to 20,000 frames per year. The machine, which has a ten-year life, sells for $ 143,000 and would cost S$ 15,000 per year to operate. Whispering Winds Pix's current machine costs only $ 8,000 per year to operate. If Whispering Winds Pix purchases the new machine, the old machine could be sold at its book value of $ 5,000. The new machine is expected to have a salvage value of $ 20,000 at the end of its ten-year life. Whispering Winds Pix uses straight-line depreciation. Calculate the new machine's net present value assuming a 16 % discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 3PB: Cinnamon Depot bakes and sells cinnamon rolls for $1.75 each. The cost of producing 500,000 rolls in...
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