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Answer
1)
years
0
1
2
3
4
5
intial cost
($10,000)
annual cash inflows
5,200
5,200
5,200
5,200
5,200
Salvage Value
rate
16%
NPV (10 years)
$15,328.20
2)
Years
0
1
2
3
4
5
intial cost
($10,000)
annual cash inflows
5,200
5,200
5,200
5,200
5,200
Salvage Value
rate
10%
NPV (10 years)
$22,302.24
3)
0
Years
($10,000)
1
2
3
4
5
intial cost
annual cash inflows
2,700
2,700
2,700
2,700
2,700
Salvage Value
rate
16%
NPV (10 years)
$3,245.13
4)
Years
0
1
2
3
4
5
intial cost
($12,000)
annual cash inflows
5,200
5,200
5,200
5,200
5,200
Salvage Value
rate
16%
NPV (12 years)
$15,170.18
Explanation
Franklin Bakery is considering buying a new doughnutmaking machine.
The cost of the
machine is
The annual operating cost of the doughnut machine are projected to be as follows.
Note : These cost projection are based on the forecasted sales level of 15,000Doughnuts per yea
Raw
Material
$2,250
Direct labor
1,200
$10,000.
The machine will last for ten years and is expected to be worth $1,000 as scrap at that
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View Full Document 1,650
900
Direct fixed cost
3,000
Indirect fixed cost
4,000
The indirect fixed costs presents the routine allocation of general company overhead to project
Franklin Bakery has determined that the appropriate cost of capital to use in evaluating this dou
Required :
2. Assume that the appropriate cost of capital is 10% instead of 16%.Compute the net present
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This note was uploaded on 06/20/2011 for the course ECON 123 taught by Professor Mrews during the Spring '11 term at Korea Advanced Institute of Science and Technology.
 Spring '11
 mrews

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