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  • Excel 4 Worksheet 3

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    The Sweetwater Candy Company is evaluating the net present value of purchasing a new machine to increase production. The machine would cost $120,000 with a 12 year life and require $5,000 in annual maintenance and have a salvage value of $7,500 after 12 years. It would reduce annual operating costs by $20,000 and increase production resulting in additional annual cash flow of $7,700. Using an incremental cost approach, the net present value calculation shows a positive NPV of $29,673, indicating the new machine investment is financially favorable.

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    The Sweetwater Candy Company is evaluating the net present value of purchasing a new machine to increase production. The machine would cost $120,000 with a 12 year life and require $5,000 in annual maintenance and have a salvage value of $7,500 after 12 years. It would reduce annual operating costs by $20,000 and increase production resulting in additional annual cash flow of $7,700. Using an incremental cost approach, the net present value calculation shows a positive NPV of $29,673, indicating the new machine investment is financially favorable.

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    216 views2 pages

    Excel 4 Worksheet 3

    Uploaded by

    wasaek78
    The Sweetwater Candy Company is evaluating the net present value of purchasing a new machine to increase production. The machine would cost $120,000 with a 12 year life and require $5,000 in annual maintenance and have a salvage value of $7,500 after 12 years. It would reduce annual operating costs by $20,000 and increase production resulting in additional annual cash flow of $7,700. Using an incremental cost approach, the net present value calculation shows a positive NPV of $29,673, indicating the new machine investment is financially favorable.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLSX, PDF, TXT or read online from Scribd
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    The Sweetwater Candy Company Net Present Value Calculation A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Data Block B

    Machine Cost Life of Machine Maintanance year Repair Cost salvage cost in 12 yrs cost of operation of new machine Current cost of method of operation Production Increases (units) CM per unit % rate of Return purchase Date salvage value now

    $120,000 12 7 5,000.00 7,500.00 10,000.00 30,000.00 7000 1.10 0.15 0 66,964.29

    $ $ $ $ $

    The Sweetwater Candy Company Annual Cash Inflows


    Reduction in annual operating costs: Old method New method Difference Annual Savings: Increased Annual CM Total Net Annual Cash Inflows

    $30,000 $10,000 $20,000

    $7,700.00 $27,700.00

    The Sweetwater Candy Company Net Present Value Calculation Incremental-Cost Approach Years cost of the machine Miantainance parts Salvage value of machine Estimate to operate with new machine Savings by using new machine increased annual cm NPV 0 7 12 12 12 12 Amt Cash fl Pv of cash Fl $120,000 ($120,000.00) $ 5,000.00 ($1,879.69) $ 7,500.00 $1,401.80 $ 10,000.00 ($54,206.19) $30,000.00 $162,618.57 $7,700.00 $41,738.77 $29,673 In Favor

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