Concord Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year- old machine currently in use. The new machine will cost $153,800, and installation will require an additional $2,800. The machine has a useful life of 10 years and is expected to have a salvage value of $4,360 at that time. The variable cost to operate the new machine is $9.10 per carton compared to the current machine's variable cost of $9.20 per carton, and Concord Vita expects to pack 239,000 cartons each year. If the new machine is purchased, Concord Vita will avoid a required $9,300 overhaul of the current machine in four years. The current machine has a market value of $11,800. Click here to view the factor table. (a) Calculate the net present value of the new packaging machine. Assume that Concord Vita uses an 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 2 decimal places, eg. 58,971.75. Enter negative amount using a negative sign preceding the number, e.g.-59,991 or parentheses eg. (59,991)) Net present value (b) Do you recommend that Concord Vita purchase the new machine?
Concord Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year- old machine currently in use. The new machine will cost $153,800, and installation will require an additional $2,800. The machine has a useful life of 10 years and is expected to have a salvage value of $4,360 at that time. The variable cost to operate the new machine is $9.10 per carton compared to the current machine's variable cost of $9.20 per carton, and Concord Vita expects to pack 239,000 cartons each year. If the new machine is purchased, Concord Vita will avoid a required $9,300 overhaul of the current machine in four years. The current machine has a market value of $11,800. Click here to view the factor table. (a) Calculate the net present value of the new packaging machine. Assume that Concord Vita uses an 10% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 2 decimal places, eg. 58,971.75. Enter negative amount using a negative sign preceding the number, e.g.-59,991 or parentheses eg. (59,991)) Net present value (b) Do you recommend that Concord Vita purchase the new machine?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
Related questions
Question
Dog
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning