9-24. In 2017, a certain manufacturing company has some existing semi-automated production equipment which they are considering replacing. This equipment has a present market value of $57,000 and a book value of $30,000. It has five more years of straight-line deprecia- tion available (if kept) of $6,000 per year, at which time its book value would be zero. The estimated market value of the equipment five years from now (in year 0 dollars) is $18,500. The market value escalation rate on this type of equipment has been averaging 3.2% per year. The total annual operating and maintenance (O & M) expense and other related expenses are averaging $27,000 per year. New automated replacement equipment would be leased. Estimated O & M and related company expenses for the new equipment are $12,200 per year. The annual leasing costs would be $24,300. The MARR (after-tax including inflation component) is 9%, the effective tax rate is 40%, and the study period is five years. Based on an after-tax, AS analysis, should the new equipment be leased? Use the IRR method. (Chapter 8. 9.9.9.10

9-24. In 2017, a certain manufacturing company has some existing semi-automated production equipment which they are considering replacing. This equipment has a present market value of $57,000 and a book value of $30,000. It has five more years of straight-line deprecia- tion available (if kept) of $6,000 per year, at which time its book value would be zero. The estimated market value of the equipment five years from now (in year 0 dollars) is $18,500. The market value escalation rate on this type of equipment has been averaging 3.2% per year. The total annual operating and maintenance (O & M) expense and other related expenses are averaging $27,000 per year. New automated replacement equipment would be leased. Estimated O & M and related company expenses for the new equipment are $12,200 per year. The annual leasing costs would be $24,300. The MARR (after-tax including inflation component) is 9%, the effective tax rate is 40%, and the study period is five years. Based on an after-tax, AS analysis, should the new equipment be leased? Use the IRR method. (Chapter 8. 9.9.9.10

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A. A patent with a ten-year remaining legal life was purchased for $300,000. The patent will be usable for another eight years. B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $600,000. The company expects to be able to use this patent for all twenty years of its life.
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.