Question

Bramble Vita produces a wide range of herbal supplements sold nationwide through independent distributors. In response to an increasing demand for its products, the company is considering the purchase of a new packaging machine to replace the seven-year-old machine currently in use. The new machine will cost $176,300, and installation will require an additional $3,275. The machine has a useful life of 10 years and is expected to have a salvage value of $3,730 at that time. The variable cost to operate the new machine is $11.80 per carton compared to the current machine’s variable cost of $11.90 per carton, and Bramble Vita expects to pack 258,000 cartons each year. If the new machine is purchased, Bramble Vita will avoid a required $11,550 overhaul of the current machine in four years. The current machine has a market value of $13,150. Identify the amount and timing of all cash flows related to the acquisition of the new packaging machine.

Answer 1

Answer and Explanation:

The Statement showing the amount and the timing of all the cash Flow of Burger is shown below:-

Year      Particulars                                             Amount

0            Cost of new machine                                       ($176,300)

0            Additional installation cost of new machine   ($3,275)

0            Sales of old machine                                          $13,150

1-3          Savings in overhaul cost of old machine           $11,550

1-10        Saving in variable cost                                        $25,800

           (258,000 × ($11.90 - $11.80)

10          Salvage value of new machine                            $3,730