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 $3,740 a year to operate, as opposed to the old machine, which costs $4,150 per year to operate. Also, because of increased capacity, an additional 21,400 donuts a year can be produced. The company makes a contribution margin of $0.10 per donut. The old machine can be sold for $8,400 and the new machine costs $31,400. The incremental annual net cash inflows provided by the new machine would be (Ignore income taxes.):

Question

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The incremental annual net cash inflows provided by the new machine would be $2,550. The new machine will cost $3,740 a year to operate, as opposed to the old machine, which costs $4,150 per year to operate. Also, because of increased capacity, an additional 21,400 donuts a year can be produced. The company makes a contribution margin of $0.10 per donut. So, the incremental annual net cash inflows provided by the new machine would be $2,550.

Charlie Corporation Is Considering Buying a New Donut Maker