TopCap Co. is evaluating the purchase of another sewing machinethat will be used to manufacture sport caps. The invoice price ofthe machine is $122,500. In addition, delivery and installationcosts will total $5,000. The machine has the capacity to produce12,000 dozen caps per year. Sales are forecast to increasegradually, and production volumes for each of the five years of themachine's life are expected to be as follows: Use Table 6-4. (Useappropriate factor(s) from the tables provided. Round the PVfactors to 4 decimals.) 2019 3,600 dozen 2020 5,600 dozen 20218,500 dozen 2022 11,300 dozen 2023 12,000 dozen The caps have acontribution margin of $8.00 per dozen. Fixed costs associated withthe additional production (other than depreciation expense) will benegligible. Salvage value and the investment in working capitalshould be ignored. TopCap Co.'s cost of capital for this capacityexpansion has been set at 6%. Required: The caps have acontribution margin of $5.00 per dozen. Fixed costs associated withthe additional production (other than depreciation expense) will benegligible. Salvage value and the investment in working capitalshould be ignored. TopCap Co.'s cost of capital for this capacityexpansion has been set at 16%. Required: Calculate the net presentvalue of the proposed investment in the new sewing machine.Calculate the present value ratio of the investment. What is theinternal rate of return of this investment relative to the cost ofcapital? Calculate the payback period of the investment.
