Kate's Candy Corporation makes chewy chocolate candles at a plant in Winston-Salem, North Carolina. Steve Bishop,...

 

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Kate's Candy Corporation makes chewy chocolate candles at a plant in Winston-Salem, North Carolina. Steve Bishop, the production manager at this facility. Installed a packaging machine last year at a cost of $550,000. This machine is expected to last for 10 more years with no residual value. Operating costs for the projected levels of production, before depreciation, are $110,000 annually. Steve has just learned of a new packaging machine that would work much more efficiently in the production line. This machine would cost $638,000 installed, but the annual operating costs would be only $44,000 before depreciation. This machine would be depreciated over 10 years with no residual value. He could sell the current packaging machine this year for $275,000. Steve has worked for Kate's Candy for 7 years. He plans to remain with the firm for about 2 more years, when he expects to become a vice president of operations at his father-in-law's company. Kate's Candy pays Steve a fixed salary with an annual bonus of 5% of net income for the year. Assume that Kate's Candy uses straight-line depreciation and has a 10% required rate of return. Ignore income tax effects. Required: 1. What is the estimated net present value of purchasing the new machine? (Do not round Intermediate calculation. Round your answers to the nearest whole dollar amount.) 2. How much would Steve Bishop's compensation be increased or decreased by the Investment? (Negative amounts should be Indicated by a minus sign.) 1. Net present value of new machine investment 2 Net effect of investment on Steve Bishop compensation Kate's Candy Corporation makes chewy chocolate candles at a plant in Winston-Salem, North Carolina. Steve Bishop, the production manager at this facility. Installed a packaging machine last year at a cost of $550,000. This machine is expected to last for 10 more years with no residual value. Operating costs for the projected levels of production, before depreciation, are $110,000 annually. Steve has just learned of a new packaging machine that would work much more efficiently in the production line. This machine would cost $638,000 installed, but the annual operating costs would be only $44,000 before depreciation. This machine would be depreciated over 10 years with no residual value. He could sell the current packaging machine this year for $275,000. Steve has worked for Kate's Candy for 7 years. He plans to remain with the firm for about 2 more years, when he expects to become a vice president of operations at his father-in-law's company. Kate's Candy pays Steve a fixed salary with an annual bonus of 5% of net income for the year. Assume that Kate's Candy uses straight-line depreciation and has a 10% required rate of return. Ignore income tax effects. Required: 1. What is the estimated net present value of purchasing the new machine? (Do not round Intermediate calculation. Round your answers to the nearest whole dollar amount.) 2. How much would Steve Bishop's compensation be increased or decreased by the Investment? (Negative amounts should be Indicated by a minus sign.) 1. Net present value of new machine investment 2 Net effect of investment on Steve Bishop compensation

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