Janet's Bakery is thinking about replacing the convection oven with a new, more energy-etficient model. Information related to the old and new ovens follows: Old Oven New Oven $21,000 Original cost Accumulated depreciation $40,000 Not acquired yet Not acquired yet 6,000 $15,000 $10,000 Book value Current disposal value Not acquired yet $2,000 Not applicable $12,000 7 years 2 years 5 years SO Installation cost $5,000 5 years O years 5 years $0 Annual operating cost Useful life Current age Remaining useful life Terminal disposal value (in 5 years) Ignore the effect of income taxes and the time value of money.

Janet's Bakery is thinking about replacing the convection oven with a new, more energy-etficient model. Information related to the old and new ovens follows: Old Oven New Oven $21,000 Original cost Accumulated depreciation $40,000 Not acquired yet Not acquired yet 6,000 $15,000 $10,000 Book value Current disposal value Not acquired yet $2,000 Not applicable $12,000 7 years 2 years 5 years SO Installation cost $5,000 5 years O years 5 years $0 Annual operating cost Useful life Current age Remaining useful life Terminal disposal value (in 5 years) Ignore the effect of income taxes and the time value of money.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...

See similar textbooks

Similar questions

Mr. Adamson is planning to acquire a new Cold Room to replace its existing unit which they use to preserve their goods. Pertinent data are given below. for existing Cold Room: for new Cold Room: Investment P580, 000.00 P1,025, 000.00 Life 5 years remaining 12 years Salvage Value P20,600.00 P25,000.00 Variable Cost P232,000.00 P35,000.00 per year Which is profitable if money is worth 10%?
Baxter Bakers is trying to decide whether it should keep its existing bread-making machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows: Old machine New machine Original cost $10,000 $25,000 Accumulated depreciation 6,000 Annual cash operating costs 9,500 5.000 Current salvage value of old machine Salvage value in 10 years 2,500 650 1,200 Remaining life 12 yrs 12 yrs Refer to Baxter Bakers. The estimated $650 salvage value of the existing machine in 10 years represents a(n) Select one: a. opportunity cost of keeping the existing machine for 10 years b. opportunity cost of selling the existing machine now c. opportunity cost of keeping the existing machine and buying the new machine d. sunk cost
The Fence Company is setting up a new production line to create top rails. The relevant data for two alternatives are shown below. Flow Line Manufacturing Cell Installed Cost Expected Life Salvage Value Variable Cost per Top Rail Click here to access the TVM Factor Table Calculator $15,000 5 years $0 $6.00 $10,000 5 years $0 $7.00
Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs associated with the two alternatives are summarized as follows: Purchase cost (new) Remaining book value Overhaul needed now Existing Machine $ 15,000 $ 6,000 $ 5,000 New Machine $ 22,000 Annual cash operating costs Salvage value (now) Salvage value (eight years from now) $6,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. 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. Assuming a discount rate of 13%, what is the net present value of the cash flows associated with keeping the existing machine? $ 10,500 $ 2,000 $1,000 $ 7,000
Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. Dunedin buys equipment frequently and wants to print a depreciation schedule for each assets life. Review the worksheet called DEPREC that follows these requirements. Since some assets acquired are depreciated by straight-line, others by units of production, and others by double-declining balance, DEPREC shows all three methods. You are to use this worksheet to prepare depreciation schedules for the new machine.
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
An oven at a bakery is being considered for replacement. Its salvage value and maintenance costs for several years are given in the table below. The first cost of a new oven is $80,000, including installation, with a MARR of 10%. What is the economic service life for this oven? Year Salvage value at end of year Maintenance costs 0 $20,000 $ 1 75,000 500 2 70,000 500 3 66,000 1000 4 62,000 3000
Kingbird 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 $229500 $382500 Accumulated depreciation 91800 - 0 - Annual operating costs 306000 244800 If the old equipment is replaced now, it can be sold for $61200. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.For this question only, assume that six months ago Chung’s equipment manager spent $30600 refurbishing the old equipment. Additionally, the equipment manager has determined that the new equipment can be rented out during idle periods to generate $1836 per year. Using this new information, what is the total cash flow associated with replacing the equipment? ($45900) ($321300) ($342720) ($312120)
Motor City Rentals is trying to decide whether it should keep its existing car detailing machine or purchase a new one that has state of the art technological advancements (which translate into cost savings) over the existing machine. Information on each machine follows: - Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs. 10 yrs. The incremental cost to purchase the new machine is Group of answer choices $11,000 $18,000. $20,000. $13,000.
Down East Chemicals is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: Original cost Annual operating cost Accumulated depreciation Current salvage value of the existing system Remaining life in 5 years Salvage value in 5 years Annual depreciation Sunk costs include: Existing Computer New Computer $10,000 $ 3,500 $ 6,000 $ 4,000 5 years $0 $ 2,000 $15,000 $ 2.000 $ 3,000
SUBJECT: ENGINEERING ECONOMYTOPIC: DEPRECIATION SHOW THE COMPLETE AND DETAILED SOLUTION OF THIS PROBLEM. THANK YOU EXPERTS. C) Five years ago, NANOTech, Inc. bought an mainframe for P580,000. It was to enjoy a useful life of 15 years and a salvage value of 10% of its original cost. On its tenth year, the firm plans to buy a new mainframe to meet its growing computing needs – the projected amount for its acquisition is P870,000. If the old mainframe will be sold on its tenth year, how much should the firm raise in order to purchase the new mainframe? Use SUM OF THE YEARS DIGITS METHOD (SYD) method
Jarett Motors is trying to decide whether it should keep its existing car washing machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows: Old machine New machine Original cost $9,000 $20,000 Accumulated depreciation 5,000 0 Annual cash operating costs 9,000 4,000 Current salvage value of old machine 2,000 Salvage value in 10 years 500 1,000 Remaining life 10 yrs 10 yrs Refer to Jarett Motors. The $20,000 cost of the new machine represents a(n) Select one: a. future relevant cost b. future irrelevant cost c. opportunity cost d. sunk cost