QUESTION

# Flint Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid \$95,000 for the machine, which was state of the art at the time of purchase. Although the

Flint Pix currently uses a six-year-old molding machine to manufacture silver picture frames. The company paid \$95,000 for the machine, which was state of the art at the time of purchase. Although the machine will likely last another ten years, it will need a \$12,000 overhaul in four years. More important, it does not provide enough capacity to meet customer demand. The company currently produces and sells 9,000 frames per year, generating a total contribution margin of \$92,500.Martson Molders currently sells a molding machine that will allow Flint Pix to increase production and sales to 12,000 frames per year. The machine, which has a ten-year life, sells for \$138,000 and would cost \$14,000 per year to operate. Flint Pix’s current machine costs only \$8,000 per year to operate. If Flint Pix purchases the new machine, the old machine could be sold at its book value of \$5,000. The new machine is expected to have a salvage value of \$20,200 at the end of its ten-year life. Flint Pix uses straight-line depreciation.

(A) Calculate the new machine’s net present value assuming a 14% discount rate.

Net present value_____?_____

(B)Use Excel or a similar spreadsheet application to calculate the new machine’s internal rate of return.

Internal rate of return____?_____

(C) Calculate the new machine’s payback period.

Payback period___?____years

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