MVP Sporting Goods Company is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 120 baseballs per hour to sewing 180 per hour. The contribution margin is $0.80 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 $24 per hour. The sewing machine will cost $354,300, have an eight year life, and will operate for 1,750 hours per year. The packing machine will cost $148,300, have an eight year life, and will operate for 1,500 hours per year. MVP seeks a minimum rate of return of 15% on its investments.
a. Determine the net present value for the two machines. Round to the nearest dollar.
b. Determine the present value index for the two machines. Round to two decimal places.
c. If MVP has sufficient funds for only one of the machines and qualitative factors are equal between the two machines, in which machine should it invest?