   Chapter 15, Problem 15.13E

Chapter
Section
Textbook Problem

Net present value method and present value indexBall Sports Inc. is considering an investment in one of two machines. The stitching machinewillincrease productivity from sewing 300 baseballs per hour to stitching 360 per hour. Thecontribution margin is $030 per baseball. Assume that any increased production of baseballs in be sold. The second machine applies a synthetic balata cover to golf balls. The golf ballmachine will reduce labor cost. The labor cost saved is equivalent to$40 per hour. The stitchingmachine will cost $484,600, have an eight-year life, and will operate for 7,500 hours per year.The golf ball machine will cost$897,400, ha an eight-year life, and will operate for 6,000hours per year. Ball Sports Inc. 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 ofan 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. c. If Ball Sports Inc. has sufficient funds for only one of the machines and qualitative factorsare equal between the two machines, in which machine should it invest? To determine (a) Concept introduction: Net present value method: It is a method of determining the present value of cash flows over the period by the multiplying the cash flows with the discounting factor of the required rate. To compute: The net present value for stitching machine and golf ball machine. Explanation B.S. Inc.  Particulars Stitching Machine Golf Ball Machine Cash inflow i.e. total savings$135,000(60×$0.30×7500)$240,000(\$40×6000) Annuity factor at   15% 4.487 4

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Find more solutions based on key concepts 