A piece of production equipment is to be replaced immediately because it no longer meets quality requirements for the endproduct. The two best alternatives are a used piece of equipment (E1) and a new automated model (E2). The economic estimates forAlt E1Alt E2Capital InvestmentPhP 14,000 PhP 65,000Aппual Expenses14,0009,000each are shown in the accompanying table.Useful Life (years)520Market Value (at the end of useful life)8,00013,000The MARR is 15% per year. Which alternative is preferred, based on the(a) coterminated assumption with a five-year study period and an imputed market value for Alternative b? Use FW.ANSWER:FW (E1) = PhP Blank 1FW (E2) = PhP Blank 2The best alternative is EBlank 3

Particulars E1 E2 n 5 20 r 15% 15% Capital Investment -14000 -65000 PV of Salvage Value…

Answered: A piece of production equipment is to…

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter10: Long-lived Tangible And Intangible Assets

Section: Chapter Questions

Problem 8Q

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Differential analysis report for machine replacement proposal Catalina Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Annual nonmanufacturing operating expenses and revenue are not expected to be affected by the purchase of the new machine. Instructions List other factors that should be considered before a final decision is reached.
An auto repair company needs a new machine that will check for defective sensors. The machine has an Initial investment of $224,000. Incremental revenues, including cost savings, are $120,000, and Incremental expenses, including depreciation, are $50,000. There is no salvage value. What is the accounting rate of return (ARR)?
Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Don Williams is General manager of Carib Systems who received a proposal to replace the Version 1 with Version 2 Point of Sales (POS) equipment at the company. Williams collects data about the proposal on Version 1 and Version 2 as follows: Version 1 POS Version 2 POSOriginal cost $425,000 $170,000Useful life 5 years 3 yearsCurrent age 2 years 0 yearsRemaining useful life 3 years 3 yearsAccumulated depreciation…
Assume that a company is choosing between two alternatives—keep an existing machine or replace it with a machine. The costs associated with the two alternatives are summarized as follows: Existing Machine New Machine Purchase cost (new) $ 15,000 $ 26,000 Remaining book value $ 6,000 Overhaul needed now $ 5,000 Annual cash operating costs $ 11,500 $ 7,000 Salvage value (now) $ 2,000 Salvage value (eight years from now) $ 1,000 $ 6,000 If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Based on a net present value analysis with a discount rate of 14%, what is the financial advantage (disadvantage) of replacing the existing machine with a new machine?
Assume that management is evaluating the purchase of a new machine as follows: Cost of new machine: $800,000 Residual value: $0 Estimated total income from machine: $300,000 Expected useful life: 5 years The average rate of return of a new equipment is _____.
A company with a MARR of 15% must install one of two production machines, X or Y. Machine X has an initial cost of $40,000 with an annual operating and maintenance (O&M) cost of $30,000 and a salvage value of $5,000 after its 5-year life. It will generate an annual benefit of $150,000. Machine Y’s benefits and costs differ from machine X’s. Hint: NPW = PW (benefits) − PW (costs) Group of answer choices NPW = [$150,000(P/A, 15%, 5)] + [$40,000 + $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 + $30,000(P/A, 15%, 5) − $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 + $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)] NPW = [$150,000(P/A, 15%, 5)] − [$40,000 − $30,000(P/A, 15%, 5) + $5,000(P/F, 15%, 5)]
Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $225,000 $375,000 Accumulated depreciation 90,000 - 0 - Annual operating costs 300,000 240,000 If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. Reference: Ref 21-2 The net advantage (disadvantage) of replacing the old equipment with the new equipment is Group of answer choices $60,000 $(75,000) $(15,000) $90,000
Don Williams is General manager of Carib Systems who received a proposal to replace theVersion 1 with Version 2 Point of Sales (POS) equipment at the company. Williams collectsdata about the proposal on Version 1 and Version 2 as follows:Version 1 POS Version 2 POSOriginal cost $425,000 $170,000Useful life 5 years 3 yearsCurrent age 2 years 0 yearsRemaining useful life 3 years 3 yearsAccumulated depreciation $195,000 Not purchased yetCurrent book value $230,000 Not purchased yetCurrent disposal value (in cash) $120,000 Not purchased yetFinal disposal value (in cash 3 years from now) $0 $0Annual POS cash operating costs $60,000 $20,000Annual revenues $1,250,000 $1,250,000Annual non POS related operating costs $920,000 $920,000Required:As the Management Accountant:1. Compare the costs of Version 1 POS and Version 2 POS. Consider the cumulative resultsfor the three years together, ignoring the time value of money and income taxes.
Eads Industrial Systems Company (EISC) is trying to decide between two different conveyor belt systems. System A costs $427,000, has a 6-year life, and requires $115,000 in pretax annual operating costs. System B costs $502,000, has an 8-year life, and requires $79,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have a zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 33 percent and the discount rate is 24 percent. Which system should the firm choose and why? a. System B because its net present value is -$612,240 b. No option is correct c. System A because its net present value is $211,516 d. System A because its net present value is -$588,792
Factor Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $491,000 cost with an expected four-year life and a $10,000 salvage value. Additional annual information for this new product line follows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Sales of new product $ 1,970,000 Expenses Materials, labor, and overhead (except depreciation) 1,502,000 Depreciation—Machinery 120,250 Selling, general, and administrative expenses 180,000 Required:1. Determine income and net cash flow for each year of this machine’s life2. Compute this machine’s payback period, assuming that cash flows occur evenly throughout each year.3. Compute net present value for this machine using a discount rate of 7%. Do do not give solution in image fromat

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