PROBLEM 10-1eXcel Performing a Basic NPV Analysis [LO2 - CC8]CHECK FIGURE(1)Annual cash flows: $30,000Wonka Candy Inc. would like to buy a new machine that would automatically dip chocolates. The dipping operation is currently donelargely by hand. The machine the company is considering costs $100,000. The manufacturer estimates that the machine would be usablefor 12 years, but, at the end of the sixth year, would require the replacement of several key parts that would cost $10,000, includinginstallation. After 12 years, the machine could be sold for about $7,500.The company estimates that the cost to operate the machine will be only $10,000 per year. The present method of dipping chocolates costs$31,000 per year. In addition to reducing costs, the new machine will increase production by 6,000 boxes of chocolates per year. Thecompany realizes a contribution margin of $1.50 per box. A 20% rate of return is required on all investments.Required:1. What are the net annual 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, and round all dollar amounts to the nearest wholedollar.

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Wonka Candy Inc. would like to buy a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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