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GNB+13e+Solutions+Ch+14

# GNB+13e+Solutions+Ch+14 - P14-19 Sweetwater Candy Company 1...

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P14-19 Sweetwater Candy Company 1. Net Annual Cash Inflows of New Dipping Machine Savings in operating costs, old method \$30,000 Operating costs, new machine \$(7,000) Additional contribution margin, new machine \$9,000 (\$1.50 x 6,000) Net annual cash inflows \$32,000 2. Net Present Value of New Dipping Machine Assume: Invest in new dipping machine PV BENEFITS: Amount Present Value Net annual cash inflows \$32,000 4.4392 \$142,055 PV(0.20,12,-1) Salvage value, new machine \$7,500 0.1122 \$841 PV(0.20,12,,-1) Total benefits \$142,896 PV COSTS: Cost, new machine \$120,000 1.0000 \$120,000 PV(0.20,0,,-1) Replacement of parts \$9,000 0.3349 \$3,014 PV(0.20,6,,-1) Total costs \$123,014 NET PV \$19,882 Recommend: Invest in new dipping machine Discount Factor

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P14-27 Bilboa Freightlines S.A. 1. Net Present Value Using Total Cost Approach Assume: Purchase new truck PV BENEFITS: Amount Present Value Salvage value, old truck \$9,000 1.0000 \$9,000 PV(0.16,0,,-1) Salvage value, new truck \$4,000 0.3050 \$1,220 PV(0.16,8,,-1) Total benefits \$10,220 PV COSTS: Purchase cost, new truck \$30,000 1.0000 \$30,000 PV(0.16,0,,-1) Annual operating costs, new truck \$6,500 4.3436 \$28,233 PV(0.16,8,-1) Total costs \$58,233 NET PV \$(48,013) Assume: Keep old truck PV BENEFITS: Amount Present Value Salvage value, old truck \$1,000 0.3050 \$305 PV(0.16,8,,-1) Total benefits \$305 PV COSTS: Overhaul cost, old truck \$7,000 1.0000 \$7,000 PV(0.16,0,,-1) Annual operating costs, old truck \$10,000 4.3436 \$43,436 PV(0.16,8,-1) Total costs \$50,436 NET PV \$(50,131) Recommend: Purchase new truck (Discounted cost is less) 2.
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