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Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand...

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Accounting

Yummy Candy Company is considering purchasing a second chocolate dipping machine in order to expand their business. The information Yummy has accumulated regarding the new machine is:

Cost of the machine $120,000
Life of the machine 5 years
Required rate of return 6%
Increased annual contribution margin
Year 1 20,000
Year 2 30,000
Year 3 40.000
Year 4 45,000
Year 5 50,000

Yummy estimates they will be able to produce more candy using the second machine and thus increase their annual contribution margin. They also estimate there will be a small disposal value of the machine but the cost of removal will offset that value. Ignore income tax issues in your answers. Assume all cash flows occur at year-end except for initial investment amounts.

Required:

Calculate the following for the new machine:

  1. Net present value
  2. Payback period
  3. Discounted payback period
  4. Internal rate of return (using the interpolation method)

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