Questions:
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 $95,000 new. It would last the bakery for eleven years but would require a $11,500 overhaul at the end of the eighth year. After eleven years, the machine could be sold for $10,000.
The bakery estimates that it will cost $14,500 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $34,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 9,000 packages per year. The bakery realizes a contribution margin of $1.00 per package. The bakery requires a 9% return on all investments in equipment. (Ignore income taxes.)
Required:
1. What are the annual net cash inflows that will be provided by the new machine? (Omit the "tiny_mce_markerquot; sign in your response.)
Annual net cash inflows $
2. Compute the new machine's net present value. Use the incremental cost approach. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "tiny_mce_markerquot; sign in your response.)
Net present value $