Reference no: EM132637585

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 new machine that the bakery is considering costs 90,000. It would last the bakery for eight years but would require a 7,500 overhaul at the end of the 5th year. After eight years, the machine could be sold for 6,000.

• The bakery estimates that it will cost of 14,000 per year to operate the new machine. The present manual method of putting toppings on the pastries costs 35,000 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 0.60 per package. The bakery requires a 16% return on all investments in equipment.

Required:

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

Question 2. Compute the new machine's net present value.