Purchasing a new boiler machine will cost $90,000 and acquiring this machine can lessen the current electricity consumption by as much as twenty percent. The estimated annual maintenance cost for a new boiler machine is 5% of its price. Current annual electricity bill is $180,000. If there will be no salvage value at the end of 6 years and Company A sets MARR = 12% per year, would it be worthwhile to invest in this new machine? Use FW to evaluate this investment.

Purchasing a new boiler machine will cost $90,000 and acquiring this machine can lessen the current electricity consumption by as much as twenty percent. The estimated annual maintenance cost for a new boiler machine is 5% of its price. Current annual electricity bill is $180,000. If there will be no salvage value at the end of 6 years and Company A sets MARR = 12% per year, would it be worthwhile to invest in this new machine? Use FW to evaluate this investment.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 10PA: The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000,...

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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?
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