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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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