70.2K

Verified Solution

Link Copied!

Bramble Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid $88,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a $12,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 11,000 frames per year, generating a total contribution margin of $85,500. Martson Molders currently sells a molding machine that will allow Bramble Pix to increase production and sales to 15,000 frames per year. The machine, which has a ten-year life, sells for $131,000 and would cost $12,000 per year to operate. Bramble Pixs current machine costs only $8,000 per year to operate. If Bramble Pix purchases the new machine, the old machine could be sold at its book value of $5,000. The new machine is expected to have a salvage value of $19,500 at the end of its ten-year life. Bramble Pix uses straight-line depreciation.

A.) Calculate the new machines net present value assuming a 14% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Net present value

$

B.) Use Excel or a similar spreadsheet application to calculate the new machines internal rate of return. (Round answer to 2 decimal places, e.g. 1.25%.)

Internal rate of return%

C.)

Calculate the new machines payback period. (Round answer to 2 decimal places, e.g. 1.25.)

Payback period

enter the payback period in years rounded to 2 decimal places

Answer & Explanation Solved by verified expert

See Answer