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Problem 12-22 Net Present Value Analysis [LO12-2] The Sweetwater Candy Company would like to buy a new machine that would aut
EXHIBIT 120-1 Present Value of $1 24 % 25% 20 % 21 % 22% 23% 19% 18% 15% 16 % 17% 14% 10% 11% 12% 13 % 8% 9% Periods 4 % 0962
-ct-mec EHIBIT 120-2 Present Value of an Annuity of $1 in Arrears; 24% 22% 23 % 21% 19% 20 % 18% 16% 17% 15% 13% 14% 0917 090
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Answer #1

Ans:

1)The annual Net Cash inflows that are provided by New dipping machine;

Reduction in annual Operating Cost

1) operating cost, Present hand method

$ 39,000

2) operating cost, New machine

$ 7,900

3) Annual savings in operating cost (1-2)

$ 31,100

increased Annual contribution ( 6,000 x $1.30)

$ 7,800

Total annual Net cash inflows

$38,900

2) NPV for new machine:

Now

1

2

3

4

5

1)Purchase of machine

-$180,000

2)Annual net cash inflows

$38,900

$38,900

$38,900

$38,900

$38,900

3)Replacement parts

-$9900

4) Salvage value of the machine

$5,000

5) Total Cash flows

-$180,000

$38,900

$38,900

$29,000

$38,900

$43,900

6) Discount factor (15%)

1

0.870

0.756

0.658

0.572

0.497

7) Present values ( 5x6)

-$180,000

$33,843

$29408

$19082

$22,251

$21,818

NPV(Negative)

($ 53,598)

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