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Inc. has additional cash available for investment and considers replacing the old factory equipment with a new one. There are two options for Scription. One option is to purchase a new equipment from Supplier A for $100,000. Supplier A equipment has a useful life of 10 years with after-tax residual value, $5,000 and can save $60,000 annually. The other option is with Supplier B. Supplier B would charge $120,000 for a new equipment. Supplier B equipment would generate $50,000 annual cost saving. Its useful life is 12 years and the after-tax residual value of $6,000.  Assume the required rate of return for both options is 8%. Using NPV method, determine which option is the more attractive. Must show your computation steps. Use the appro

Inc. has additional cash available for investment and considers replacing the old factory equipment with a new one. There are two options for Scription. One option is to purchase a new equipment from Supplier A for $100,000. Supplier A equipment has a useful life of 10 years with after-tax residual value, $5,000 and can save $60,000 annually. The other option is with Supplier B. Supplier B would charge $120,000 for a new equipment. Supplier B equipment would generate $50,000 annual cost saving. Its useful life is 12 years and the after-tax residual value of $6,000.  Assume the required rate of return for both options is 8%. Using NPV method, determine which option is the more attractive. Must show your computation steps. Use the appro

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Scription Inc. has additional cash available for investment and considers replacing the old factory equipment with a new one. There are two options for Scription. One option is to purchase a new equipment from Supplier A for $100,000. Supplier A equipment has a useful life of 10 years with after-tax residual value, $5,000 and can save $60,000 annually. The other option is with Supplier B. Supplier B would charge $120,000 for a new equipment. Supplier B equipment would generate $50,000 annual cost saving. Its useful life is 12 years and the after-tax residual value of $6,000. 

Assume the required rate of return for both options is 8%. Using NPV method, determine which option is the more attractive. Must show your computation steps. Use the appropriate tables in Appendix A to obtain the relevant present value factor and round up your final answer to the nearest dollar.

Tablel Future Value of $1 Period 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 1 1.01000 1.02000 1.03000 1.04000 1.05000 1.06000 1.07000 1.08000 1.09000 1.10000 1.11000 1.12000 1.02010 1.04040 1.06090 1.08160 1.10250 1.12360 1.14490 1.16640 1.18810 1.21000 1.23210 1.25440 3 1.03030 1.06121 1.09273 1.12486 1.15763 1.19102 1.22504 1.25971 1.29503 1.33100 1.36763 1.40493 4 1.04060 1.08243 1.12551 1.16986 1.21551 1.26248 1.31080 1.36049 1.41158 1.46410 1.51807 1.57352 1.05101 1.10408 1.15927 121665 1.27628 1.33823 1.40255 1.46933 1.53862 1.61051 1.68506 1.76234 1.06152 1.12616 1.19405 1.26532 1.34010 1.41852 1.50073 1.58687 1.67710 1.77156 1.87041 1.97382 7 1.07214 1.14869 1.22987 1.31593 1.40710 1.50363 1.60578 1.71382 1.82804 1.94872 2.07616 221068 8 1.08286 1.17166 1.26677 1.36857 1.47746 1.59365 1.71819 1.85093 1.99256 2.14359 2.30454 2.47596 1.09369 1.19509 1.30477 1.42331 1.55133 1.68948 1.83846 1.99900 2.17189 2.35795 2.55804 2.77308 10 1.10462 1.21899 1.34392 1.48024 1.62889 1.79085 1.96715 2.15892 2.36736 2.59374 2.83942 3.10585 11 1.11567 1.24337 1.38423 1.53945 1.71034 1.89830 2.10485 2.33164 2.58043 2.85312 3.15176 3.47855 12 1.12683 1.26824 1.42576 1.60103 1.79586 2.01220 225219 2.51817 2.81266 3.13843 3.49845 3.89598 13 1.13809 129361 1.46853 1.66507 1.88565 2.13293 2.40985 2.71962 3.06580 3.45227 3.88328 4.36349 14 1.14947 1.31948 1.51259 1.73168 1.97983 226090 2.57853 2.93719 3.34173 3.79750 4.31044 4.88711 15 1.16097 1.34587 1.55797 1.80094 2.07893 2.39656 2.75903 3.17217 3.64248 4.17725 4.78459 5.47357 16 1.17258 1.37279 1.60471 1.87298 2.18287 2.54035 2.95216 3.42594 3.97031 4.59497 5.31089 6.13039 17 1.18430 1.40024 1.65285 1.94790 2.29202 2.69277 3.15882 3.70002 4.32763 5.05447 5.89509 6.86604 18 1.19615 1.42825 1.70243 2.02582 2.40662 2.85434 3.37993 3.99602 4.71712 5.55992 6.54355 7.68997 19 1.20811 1.45681 1.75351 2.10685 2.52695 3.02560 3.61653 4.31570 5.14166 6.11591 7.26334 8.61276 20 1.22019 1.48595 1.80611 2.19112 2.65330 3.20714 3.86968 4.66096 5.60441 6.72750 8.06231 9.64629 25 128243 1.64061 209378 2.66584 3.38635 4.29187 5.42743 6.84848 8.62308 10.83471 13.58546 17.00006 30 1.34785 1.81136 2.42726 3.24340 4.32194 5.74349 7.61226 10.06266 13.26768 17.44940 22.89230 29.95992 35 1.41660 1.99989 2.81386 3.94609 5.51602 7.68609 10.67658 14.78534 20.41397 28.10244 38.57485 52.79962 40 1.48886 220804 3.26204 4.80102 7.03999 10.28572 14.97446 21.72452 31.40942 45.25926 65.00087 93.05097 50 1.64463 2.69159 4.38391 7.10668 11.46740 18.42015 29.45703 46.90161 74.35752 117.39085 184.56483 289.00219
Transcribed Image Text:Tablel Future Value of $1 Period 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 1 1.01000 1.02000 1.03000 1.04000 1.05000 1.06000 1.07000 1.08000 1.09000 1.10000 1.11000 1.12000 1.02010 1.04040 1.06090 1.08160 1.10250 1.12360 1.14490 1.16640 1.18810 1.21000 1.23210 1.25440 3 1.03030 1.06121 1.09273 1.12486 1.15763 1.19102 1.22504 1.25971 1.29503 1.33100 1.36763 1.40493 4 1.04060 1.08243 1.12551 1.16986 1.21551 1.26248 1.31080 1.36049 1.41158 1.46410 1.51807 1.57352 1.05101 1.10408 1.15927 121665 1.27628 1.33823 1.40255 1.46933 1.53862 1.61051 1.68506 1.76234 1.06152 1.12616 1.19405 1.26532 1.34010 1.41852 1.50073 1.58687 1.67710 1.77156 1.87041 1.97382 7 1.07214 1.14869 1.22987 1.31593 1.40710 1.50363 1.60578 1.71382 1.82804 1.94872 2.07616 221068 8 1.08286 1.17166 1.26677 1.36857 1.47746 1.59365 1.71819 1.85093 1.99256 2.14359 2.30454 2.47596 1.09369 1.19509 1.30477 1.42331 1.55133 1.68948 1.83846 1.99900 2.17189 2.35795 2.55804 2.77308 10 1.10462 1.21899 1.34392 1.48024 1.62889 1.79085 1.96715 2.15892 2.36736 2.59374 2.83942 3.10585 11 1.11567 1.24337 1.38423 1.53945 1.71034 1.89830 2.10485 2.33164 2.58043 2.85312 3.15176 3.47855 12 1.12683 1.26824 1.42576 1.60103 1.79586 2.01220 225219 2.51817 2.81266 3.13843 3.49845 3.89598 13 1.13809 129361 1.46853 1.66507 1.88565 2.13293 2.40985 2.71962 3.06580 3.45227 3.88328 4.36349 14 1.14947 1.31948 1.51259 1.73168 1.97983 226090 2.57853 2.93719 3.34173 3.79750 4.31044 4.88711 15 1.16097 1.34587 1.55797 1.80094 2.07893 2.39656 2.75903 3.17217 3.64248 4.17725 4.78459 5.47357 16 1.17258 1.37279 1.60471 1.87298 2.18287 2.54035 2.95216 3.42594 3.97031 4.59497 5.31089 6.13039 17 1.18430 1.40024 1.65285 1.94790 2.29202 2.69277 3.15882 3.70002 4.32763 5.05447 5.89509 6.86604 18 1.19615 1.42825 1.70243 2.02582 2.40662 2.85434 3.37993 3.99602 4.71712 5.55992 6.54355 7.68997 19 1.20811 1.45681 1.75351 2.10685 2.52695 3.02560 3.61653 4.31570 5.14166 6.11591 7.26334 8.61276 20 1.22019 1.48595 1.80611 2.19112 2.65330 3.20714 3.86968 4.66096 5.60441 6.72750 8.06231 9.64629 25 128243 1.64061 209378 2.66584 3.38635 4.29187 5.42743 6.84848 8.62308 10.83471 13.58546 17.00006 30 1.34785 1.81136 2.42726 3.24340 4.32194 5.74349 7.61226 10.06266 13.26768 17.44940 22.89230 29.95992 35 1.41660 1.99989 2.81386 3.94609 5.51602 7.68609 10.67658 14.78534 20.41397 28.10244 38.57485 52.79962 40 1.48886 220804 3.26204 4.80102 7.03999 10.28572 14.97446 21.72452 31.40942 45.25926 65.00087 93.05097 50 1.64463 2.69159 4.38391 7.10668 11.46740 18.42015 29.45703 46.90161 74.35752 117.39085 184.56483 289.00219
Table Il Future Value of an Ordinary Annuity of $1 per Period Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 1 1.00000 1.0000 1.00000 1.00000 1.00000 1.00000 10000 1.0000 1.0000 1.000 1.00000 1.0000 2 201000 2.02000 2.03000 204000 2.05000 2.06000 2.07000 2.08000 2.09000 2.10000 2.11000 2.12000 3 303010 3.06040 3.08090 3.12160 3.15250 3.18360 321490 324640 3.27810 331000 3.34210 337440 4 4.06040 4.12161 4.18363 424646 4.31013 4.37462 4.43994 4.50611 4.57313 4.64100 4.70973 4.77933 5 5.10101 5.20404 5.30914 5.41632 5.52563 5.63709 5.75074 5.86660 5.98471 6.10510 6.22780 6.35285 6 6.15202 6.30812 6.46841 6.63296 6.80191 6.97532 7.15329 7.33593 7.52333 7.71561 7.91286 8.11519 7 721354 7.43428 7.66246 7.89829 8.14201 8.39384 8.65402 8.92280 9.20043 9.48717 9.78327 10.08901 8 828567 8.58297 8.89234 921423 954911 9.89747 1025980 10.63663 11.02847 11.43589 11.85943 1229969 9 9.38853 9.75463 10.15911 10.58280 11.02656 11.49132 11.97799 12.48756 13.02104 13.57948 14.16397 14.77566 10 10.46221 10.94972 11.46388 12.00611 12.57789 13.18079 13.81645 14.48656 15.19293 15.93742 16.72201 17.54874 11 11.56683 12.16872 12.80780 13.48635 14.20679 14.97164 15.78360 16.64549 17.56029 18.53117 19.56143 20.65458 12 12.68250 13.41209 14.19203 15.02581 15.91713 16.86994 17.88845 18.97713 20.14072 21.38428 22.71319 24.13313 13 13.80933 14.68033 15.61779 16.62684 17.71298 18.88214 20.14064 21.49530 22.95338 24.52271 2621164 28.02911 14 14.94742 15.97394 17.08632 18.29191 19.59863 21.01507 22.55049 24.21492 26.01919 27.97498 30.09492 32.39260 15 16.09690 17.29342 18.59891 20.02359 21.57856 23.27597 25.12902 27.15211 29.36092 31.77248 34.40536 37.27971 16 17.25786 18.63929 20.15688 21.82453 23.65749 25.67253 27.88805 30.32428 33.00340 35.94973 39.18995 42.75328 17 18.43044 20.01207 21.76159 23.69751 25.84037 28.21288 30.84022 33.75023 36.97370 40.54470 44.50084 48.88367 18 19.61475 21.41231 23.41444 25.64541 28.13238 30.90565 33.99903 37.45024 41.30134 45.59917 50.39594 55.74971 19 20.81090 22.84056 25.11687 27.67123 30.53900 33.75999 37.37896 41.44626 46.01846 51.15909 56.93949 63.43968 20 22.01900 24.29737 26.87037 29.77808 33.06595 36.78559 40.99549 45.76196 51.16012 57 27500 64.20283 72.06244 25 28.24320 32.03030 36.45926 41.64591 47.72710 54.86451 63.24904 73.10594 84.70090 98.34706 114.41331 133.3387 30 34.78489 40.56808 47.57542 56.08494 66.43885 79.05819 94.46079 113.28321 136.30754 164.49402 199.02088 241.33268 35 41.66028 49.99448 60.46208 73.65222 90.32031 111.43478 138.23688 172.31680 215.71075 271.02437 341.58955 431.66350 40 48.88637 60.40198 75.40126 95.02552 120.79977 154.76197 199.63511 259.05652 337.88245 442.59256 581.82607 767.09142 50 64.46318 84.57940 112.79687 152.66708 209.34800 290.33590 406.52893 573.77016 815.08356 1163.90853 1668.77115 2400.01825
Transcribed Image Text:Table Il Future Value of an Ordinary Annuity of $1 per Period Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 1 1.00000 1.0000 1.00000 1.00000 1.00000 1.00000 10000 1.0000 1.0000 1.000 1.00000 1.0000 2 201000 2.02000 2.03000 204000 2.05000 2.06000 2.07000 2.08000 2.09000 2.10000 2.11000 2.12000 3 303010 3.06040 3.08090 3.12160 3.15250 3.18360 321490 324640 3.27810 331000 3.34210 337440 4 4.06040 4.12161 4.18363 424646 4.31013 4.37462 4.43994 4.50611 4.57313 4.64100 4.70973 4.77933 5 5.10101 5.20404 5.30914 5.41632 5.52563 5.63709 5.75074 5.86660 5.98471 6.10510 6.22780 6.35285 6 6.15202 6.30812 6.46841 6.63296 6.80191 6.97532 7.15329 7.33593 7.52333 7.71561 7.91286 8.11519 7 721354 7.43428 7.66246 7.89829 8.14201 8.39384 8.65402 8.92280 9.20043 9.48717 9.78327 10.08901 8 828567 8.58297 8.89234 921423 954911 9.89747 1025980 10.63663 11.02847 11.43589 11.85943 1229969 9 9.38853 9.75463 10.15911 10.58280 11.02656 11.49132 11.97799 12.48756 13.02104 13.57948 14.16397 14.77566 10 10.46221 10.94972 11.46388 12.00611 12.57789 13.18079 13.81645 14.48656 15.19293 15.93742 16.72201 17.54874 11 11.56683 12.16872 12.80780 13.48635 14.20679 14.97164 15.78360 16.64549 17.56029 18.53117 19.56143 20.65458 12 12.68250 13.41209 14.19203 15.02581 15.91713 16.86994 17.88845 18.97713 20.14072 21.38428 22.71319 24.13313 13 13.80933 14.68033 15.61779 16.62684 17.71298 18.88214 20.14064 21.49530 22.95338 24.52271 2621164 28.02911 14 14.94742 15.97394 17.08632 18.29191 19.59863 21.01507 22.55049 24.21492 26.01919 27.97498 30.09492 32.39260 15 16.09690 17.29342 18.59891 20.02359 21.57856 23.27597 25.12902 27.15211 29.36092 31.77248 34.40536 37.27971 16 17.25786 18.63929 20.15688 21.82453 23.65749 25.67253 27.88805 30.32428 33.00340 35.94973 39.18995 42.75328 17 18.43044 20.01207 21.76159 23.69751 25.84037 28.21288 30.84022 33.75023 36.97370 40.54470 44.50084 48.88367 18 19.61475 21.41231 23.41444 25.64541 28.13238 30.90565 33.99903 37.45024 41.30134 45.59917 50.39594 55.74971 19 20.81090 22.84056 25.11687 27.67123 30.53900 33.75999 37.37896 41.44626 46.01846 51.15909 56.93949 63.43968 20 22.01900 24.29737 26.87037 29.77808 33.06595 36.78559 40.99549 45.76196 51.16012 57 27500 64.20283 72.06244 25 28.24320 32.03030 36.45926 41.64591 47.72710 54.86451 63.24904 73.10594 84.70090 98.34706 114.41331 133.3387 30 34.78489 40.56808 47.57542 56.08494 66.43885 79.05819 94.46079 113.28321 136.30754 164.49402 199.02088 241.33268 35 41.66028 49.99448 60.46208 73.65222 90.32031 111.43478 138.23688 172.31680 215.71075 271.02437 341.58955 431.66350 40 48.88637 60.40198 75.40126 95.02552 120.79977 154.76197 199.63511 259.05652 337.88245 442.59256 581.82607 767.09142 50 64.46318 84.57940 112.79687 152.66708 209.34800 290.33590 406.52893 573.77016 815.08356 1163.90853 1668.77115 2400.01825
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