Flint Pix currently uses a six-year-old molding machine to manufacture silver picture frames
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.