Doughboy Bakery would like to buy a new machine for putting icing and other toppings on pastries. These are now put on by hand. The machine that the bakery is considering costs $85,000 new. It would last the bakery for seventeen years but would require a $5,000 overhaul at the end of the fourteenth year. After seventeen years, the machine could be sold for $3,500.
The bakery estimates that it will cost $15,000 per year to operate the new machine. The present manual method of putting toppings on the pastries costs $35,000 per year. In addition to reducing operating costs, the new machine will allow the bakery to increase its production of pastries by 4,000 packages per year. The bakery realizes a contribution margin of $0.80 per package. The bakery requires a 14% return on all investments in equipment.
Required:
1.What are the annual net cash inflows that will be provided by the new machine?