Question

Question Help regarding the new mache o e Heavenly Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Heavenly has com BB Cack the icon to view the information) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Anuty of table Read the requirements Requirement 1. Calculate the following for the new machine: a. Net present value (NPV) (Use factors to three decimal places, XXX, and use a minussion or parentes for a negative nel presenteEnter the net present value of the investment rounded to the whole dollar) The net present value is $

Answer 1

Section 1

Part A

NPV = present value of cash inflows – present value of cash outflow

= (24000*6.802 )-160000 = $3248

Part B

Payback period = 160000/24000 = 6.67 years

Part C

Discounted payback period = 8years + (10984/14208) = 8.77 years

Cash flows	PV factor	Present value	Cumulative discounted cash flows
-160000	1	-160000	-160000
24000	0.943	22632	-137368
24000	0.890	21360	-116008
24000	0.840	20160	-95848
24000	0.792	19008	-76840
24000	0.747	17928	-58912
24000	0.705	16920	-41992
24000	0.665	15960	-26032
24000	0.627	15048	-10984
24000	0.592	14208	3224

Part D

IRR = 6.46%

IRR factor = 160000/24000=6.667

Part E

Accrual account rate of return = net income / initial investment

Net income = increased contribution margin – depreciation = 24000-(160000/9) = 6222

ARR = 6222/16000 = 38.89%

Section 2

A. The upheaval of installing a new computer system. Its useful life is estimated to be 9 years. This means that Splendid could face this upheaval again in 9 years

B. The benefits of the new system for customers.

C. Issues related to the financing of the project, and the availability of capital to pay for the system.

D. The costs of training and other "hidden" start-up costs are included in the estimated $160,000 cost of the new machine.