MVP Sports Equipment Company is considering an investment in one of two machines. The sewing machine will

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MVP Sports Equipment Company is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 150 baseballs per hour to sewing 270 per hour. The contribution margin is $0.48 per baseball. Assume that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to $26 per hour. The sewing machine will cost $384,600, have an eight-year life, and will operate for 1,700 hours per year. The packing machine will cost $157,900, have an eight-year life, and will operate for 1,600 hours per year. MVP seeks a minimum rate of return of 15% on its investments.

a. Determine the net present value for the two machines. Use the table of present values of an annuity of $1 in the chapter. Round to the nearest dollar.

b. Determine the present value index for the two machines. Round to two decimal places.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...
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Accounting

ISBN: 978-0324662962

23rd Edition

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

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