Reference no: EM13568049

Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs $86,000 new. It would last the bakery for twelve years but would require a $7,500 overhaul at the end of the ninth year. After twelve years, the machine could be sold for $6,000.

The bakery estimates that it will cost $20,500 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $40,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 5,000 packages per year. The bakery realizes a contribution margin of $0.80 per package. The bakery requires a 8% return on all investments in equipment. (Ignore income taxes.)
Required:

1.What are the annual net cash inflows that will be provided by the new machine?
Annual net cash inflows $

2.Compute the new machine's net present value. Use the incremental cost approach. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)

Net present value $