Question

Charlie Corporation is considering buying a new donut maker. This machine will replace an old donut maker that still has a useful life of 6 years. The new machine will cost $3,730 a year to operate, as opposed to the old machine, which costs $4,125 per year to operate. Also, because of increased capacity, an additional 21,300 donuts a year can be produced. The company makes a contribution margin of $0.10 per donut. The old machine can be sold for $8,300 and the new machine costs $31,300. The incremental annual net cash inflows provided by the new machine would be (Ignore income taxes.):

Answer 1

The incremental annual net cash inflows provided by the new machine would be $2,525.

Step-by-step explanation:

In order to calculate the incremental annual net cash inflows provided by the new machine we would have to use the following formula:

incremental annual net cash inflows=saving in annual operating cost+contribution earned on additional sales

=( $4,125-$3,730)+(21,300×$0.10)

=$395+$2,130

=$2,525

Hence, The incremental annual net cash inflows provided by the new machine would be $2,525.