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Question 14
A new baking machine costing $10,000 is purchased. Using a declining balance rate of 15 percent, find the book value at the end of 5 years.
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- REPLACEMENT ANALYSIS The Dauten Toy Corporation currently uses an injection molding machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its current book value is 2,100, and it can be sold for 2,500 at this time. Thus, the annual depreciation expense is 2,100/6 = 350 per year. If the old machine is not replaced, it can be sold for 500 at the end of its useful life. 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. This machine falls into the MACRS 5-year class so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. 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 40%, and its WACC is 15%. Should it replace the old machine?REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from 24,000 to 46,000 per year. The new machine will cost 80,000; and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer.QUESTION 4 A cloth dryer machine cost RM10,000 and is expected to have useful life of 7 years. It will then have a scrap value of RM2,000. Using the reducing balance method, calculate the book value after 4 years.
- Item 6 Time Remaining 1 hour 57 minutes 54 seconds 01:57:54 Item 6 Time Remaining 1 hour 57 minutes 54 seconds 01:57:54 Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and a $17,000 salvage value. The machine will lower operating costs by $18,000 per year and increase sales volume by 1,000 units per year. The company earns a contribution margin of $3.00 per unit. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company’s required rate of return is 17%, the minimum dollar value per year that must be provided by the machine’s qualitative benefits to justify the $100,000 investment is closest to: Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $4,154. $3,054. $3,364. $4,084.Hw.74. An office supply company has purchased a light duty delivery truck for $25,000. It is anticipated that the truck will increase the company’s revenue by $10,000 annually, whereas the associated operating expenses are expected to be $3,000 per year. The truck’s market value is expected to decrease at the end of the study period, equivalent to 15% of its original purchase cost. If the company plans to keep the truck for only 5 years, determine the IRR and ERR given that MARR = є = 15%Question 17 Boyertown Industrial Tools is considering a 2-year project to improve its production efficiency. They have spent $25,000 over the previous year researching a new machine press. Buying the new machine press for $500,000 is estimated to result in $300,000 in annual pretax cost savings and will provide quarterly dividends of $2,500 to the shareholders. The press falls in the MACRS three-year class, and it will have a salvage value at the end of the project of $100,000. The press also requires an initial investment in spare parts inventory of $50,000, along with an additional $5,000 in inventory for each succeeding year of the project. If the tax rate is 35, what is the aftertax salvage value for the machine press? Property Class Year 3Year 5 year 7 year 1 33.33 20.00 14.29 2 44.45…
- 6.1 Calculating Project NPV Paul Restaurant is considering the purchase of a $9,300 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,400 soufflés per year, with each costing $1.97 to make and priced at $4.95. The discount rate is 14 percent and the tax rate is 21 percent. Should the company make the purchase?Problem 9-07 A firm has earnings of $25,000 before interest, depreciation, and taxes. A new piece of equipment is installed at a cost of $13,000. The equipment will be depreciated over five years, and the firm pays 15 percent of its earnings in taxes. What are the earnings and cash flows for the firm in years 2 and 5, using the two methods of depreciation? Use Exhibit 9.4to answer the questions. Round your answers to the nearest dollar. Modified Accelerated Straight-line Cost Recovery Year 2 Year 5 Year 2 Year 5 Earnings before depreciation and taxes $ $ $ $ Depreciation expense Earnings after depreciation Taxes (15% tax rate) Net earnings $ $ $ $ Cash flow $ $ $ $QUESTION 3 The cost of a new pickup truck is RM90,800. The scrap value after 10 years is RM4,200. Using the straight line method, calculate: a) The annual depreciation. b) The accumulated depreciation after 4 years. c) The book value after 4 years.
- Problem 6-26 Project Analysis and Inflation Shinoda Manufacturing, Incorporated, has been considering the purchase of a new manufacturing facility for $630,000. The facility is to be fully depreciated on a straightline basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $455,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 3 percent. Production costs at the end of the first year will be $300,000, in nominal terms, and they are expected to increase at 4 percent per year. The real discount rate is 6 percent. The corporate tax rate is 24 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPVQuestion 5 Adam’s mowing Limited purchased a group of new lawnmowers for $20,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five years and to have $500 residual value at that point. The entity’s business plan projects cutting 5,000 lawns over the five years, with per-year projections of 500, 1,000, 1,200, 1,800 and 500 lawns over the five years. Required: Calculate the Accumulated Depreciation balance at the end of the second year using each of the following depreciation bases. Show your working. straight-line diminishing balance (52 per cent rate) units-of-production. You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity.…24). from the following facts,for the sum of years digits what is given: cost : $15,000 residual value : $4000 est useful life: 4 years required: what is the book value for end of year 3?
