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Franklin Bakery is considering buying a new doughnutmaking machine.
The cost of the
machine is
$10,000.
The machine will last for ten years and is expected to be worth $1,000 as scrap
at that time.
The new machine will allow for an increase in production of 15,000
doughnuts per year.
Each Doughnut has a selling price of 50cents.
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 year.
Raw
Material
$2,250
Direct labor
1,200
Variable Production overhead
1,650
Variable selling costs
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 , actually because of the efficiency and reliability of the machine general fixed
company overhead will go down by $ 3,700 as a result of the purchase of the new
doughnut making
Franklin Bakery has determined that the appropriate cost of capital to use in evaluating
this doughnut machine is 16%
Required :
1. Compute the net present value of The doughnut machine
2. Assume that the appropriate cost of capital is 10% instead of 16%.Compute the net
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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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