# Hyb - Franklin Bakery is considering buying a new doughnut-making machine The cost of the machine is \$10,000 The machine will last for ten years

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Franklin Bakery is considering buying a new doughnut-making 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.

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Hyb - Franklin Bakery is considering buying a new doughnut-making machine The cost of the machine is \$10,000 The machine will last for ten years

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