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The Sweet Shoppe Candy Company would like to buy a new machine that would automatically dip chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $120,000. The manufacturer estimates that the machine would be usable for 12 years but would require the replacement of several key parts at the end of the sixth year. These parts would cost $9,000, including installation. After 12 years, the machine could be sold for $7,500. The company estimates that the cost to operate the machine will be $7,000 per year. The present method of dipping chocolates costs $30,000 per year. In addition to reducing costs, the new machine will increase production by 6,000 boxes of chocolates per year. The company realizes a contribution margin of $1.50 per box. A 20% rate of return is required on all investments What are the annual net cash inflows that will be provided by the new dipping machine? Compute the new machines net present value. Use the incremental cost approach and round all dollar amounts to the nearest whole dollar 1. 2.1. The annual net cash inflows would be Reduction in annual operating costs Operating costs, present hand methood Operating costs, new machine Annual savings in operating costs Increased annual contribution margin boxes x $ Total annual net cash inflows pxr box 2 Item PMT FV CPT PV Cost of the machine Replacement of parts Annual net cash inflows (above) Salvage value of the machine Net present value

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