# Calculating Net Cash Inflows and Net Present Values

The confectioner corner Inc. would like to buy a new machine that automatically dips chocolates. The dipping operation is currently done largely by hand. The machine the company is considering costs $100,000. The machine would be usable for 10 years but would requirement of several key parts at the end of the fifth year. These parts would cost $7000, including installation. After 10 years, the machine could be sold for $6000.

The company estimates that cost to operate the machine will be $6500 per year. The present method of dipping costs $24000 per year. In addition to reducing costs, the new machine will increase the production by 5,500 boxes of chocolate per year. The company realizes a contribution margin of $2.10 per box. An 18% rate of return is required on all investments.

Required

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

2. Compute the new machine's net present value. Use the incremental cost approach and round all dollar amounts to nearest whole numbaers

https://brainmass.com/business/net-present-value/calculating-net-cash-inflows-and-net-present-values-195459

#### Solution Preview

Please refer attached solution for complete details.

Solution:

Tabulation of Information Given In Problem

All figures in $

Cash Outflow Cash inflow Net PV

At the end Price of Repair Operational Total Value of Savings Increased production Total Cash @18%

of year Machine Costs Costs Outflow Old Machine ...

#### Solution Summary

Solution describes the steps in finding net cash inflows for a proposal of buying a chocolate dipping machine. Net present Value of all years is calculated to see whether project is feasible or not.