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6.3 Berry Chips Inc. (BCI)is considering acquiring a new semiconductor fabricator. The machine...

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Accounting

6.3
Berry Chips Inc. (BCI)is considering acquiring a new semiconductor fabricator. The machine costs $985,000, will last for eight years, and has a salvage value of $45,000. The forecasted net revenue stream isas shown. For simplicity, assume all net revenues are received at the end of the year. BCI uses a discount rate of9%.
Year 1
Cost
Cash Inflows
Salvage Value
Net Cash Inflows
0
$985,000
$
$
$
1
75,000
2
90,000
3
220,000
4
280,000
5
210,000
6
175,000
7
160,000
8
110,000
45,000
Required:
(a)Use the net present value method to determine whether BCI should buy the machine.
(b)Name two things that would have to change for you to change your decision. Assume cash flows cannot change.
6.4
Required:
Use the data from Problem and Case 6.3to recalculate part (a) using a discount rate of7%.

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