# How would I do this problem? Transcribed Image Text: Net Present Value Method and Present Value Index Diamond and Turf Inc. is considering an investment

How would I do this problem? Transcribed Image Text: Net Present Value Method and Present Value Index
Diamond and Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 120 baseballs per hour to sewing 216 per hour. The contribution margin per unit is \$0.46 per baseball. Assume
that any increased production of baseballs can be sold. The second machine is an automatic packing machine for the golf ball line. The packing machine will reduce packing labor cost. The labor cost saved is equivalent to \$27 per hour. The sewing
machine will cost \$330,500, have a 10-year life, and will operate for 1,400 hours per year. The packing machine will cost \$159,300, have a 10-year life, and will operate for 1,200 hours per year. Diamond and Turf seeks a minimum rate of return
of 10% on its investments.
Present Value of an Annuity of \$1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.353
2.991
6
4.917
4.355
4.111
3.785
3.326
5.582
4.868
4.564
4.160
3.605
8
6.210
5.335
4.968
4.487
3.837
9
6.802
5.759
5.328
4.772
4.031
10
7.360
6.145
5.650
5.019
4.192
a. Determine the net present value for the two machines. Use the table of present values of an annuity of \$1 above. Round to the nearest dollar.
Sewing Machine
Packing Machine
Present value of annual net cash flows
Amount to be invested
Net present value
b. Determine the present value index for the two machines. If required, round your answers to two decimal places.
Sewing Machine
Packing Machine
Present value index
c. If Diamond and Turf has sufficient funds for only one of the machines and qualitative factors are equal between the two machines, in which machine should it invest? (If both present value indexes are the same, either machine will grade as
correct.)