Question

Diamond and Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 110 baseballs per hour to sewing 198 per hour. The contribution margin per unit is $0.44 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $23 per hour. The sewing machine will cost $189,400, have a six-year life, and will operate for 1,400 hours per year. The packing machine will cost $96,400, have a six-year life, and will operate for 1,200 hours per year. Diamond and Turf seeks a minimum rate of return of 12% on its investments.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Determine the net present value for the two machines. Use the table of present values of an annuity of $1 above. Round to the nearest dollar.

	Sewing Machine	Packing Machine
Present value of annual net cash flows	$	$
Amount to be invested	$	$
Net present value	$	$

b. Determine the present value index for the two machines. If required, round your answers to two decimal places.

	Sewing Machine	Packing Machine
Present value index

Answer 1

Net pret Valwe: -7 Seusing Makine 1400 X 88 Annual ncrease. 12920 0 Conk, bu Her 125200 X o. 44 = 수54208 Amnval cah present value arrndt丬dachor = 4.111 54208 x 4.111 Pal ent valve annual Cash キaa7849 189,400 Net present value-수 33,449 → Pacl4ng Machine SaNing in Labour Cost Annual)= 23x4120° = 추려600

val cash n p九esent Value Annuth . factDY = 4,111 present value 어 Annual Cash = 27600 x 4«W 3464 96, 400 Amount to be Tvted Net present valwe Sewlnq Machine Paekna Machine esut vae anual net Cash teouý 22341 113464 9 400 Amount to be Invested 6400 33449 门06't Preset value o cash Seong machine- 、R2849 r40o 13나64 oLLDo 1.17 Packng Macane -