Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs $97,000 new. It would last the bakery for twelve years but would require a $7,500 overhaul at the end of the ninth year. After twelve years, the machine could be sold for $6,000.
The bakery estimates that it will cost $16,500 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $36,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 5,000 packages per year. The bakery realizes a contribution margin of $0.40 per package. The bakery requires a 4% return on all investments in equipment.
Required:What are the annual net cash inflows that will be provided by the new machine?