Q3. Two years ago, a machine was purchased at a cost of $( 2,000,000) to be useful for eight years. Its salvage value at the end of its life is $ 25,000. The annual maintenance cost is $ 25,000. The market value of the present machine is $ 1,200,000. Now, a new machine to cater to the need of the present machine is available at $ 1,500,000 to be useful for six years. Its annual maintenance cost is $ 14,000. The salvage value of the new machine is $ 20,000. Using an interest rate of 12%, find whether it is worth replacing the present machine with the new machine.

Q3. Two years ago, a machine was purchased at a cost of $( 2,000,000) to be useful for eight years. Its salvage value at the end of its life is $ 25,000. The annual maintenance cost is $ 25,000. The market value of the present machine is $ 1,200,000. Now, a new machine to cater to the need of the present machine is available at $ 1,500,000 to be useful for six years. Its annual maintenance cost is $ 14,000. The salvage value of the new machine is $ 20,000. Using an interest rate of 12%, find whether it is worth replacing the present machine with the new machine.

Name: Q3.Two years ago, a machine was purchased at a cost of $( 2,000,000)t
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Description: Q3.Two years ago, a machine was purchased at a cost of $( 2,000,000)to be useful for eight years. Its salvage value at the end of its life is $ 25,000.The annual maintenance cost is $ 25,000. The market value of the presentmachine is $ 1,200,000. No

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 13PB: Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and...

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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.
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and is expected to be driven for ten years. Montezuma uses the straight-line depreciation method. Calculate the annual depreciation expense. After five years of recording depreciation, Montezuma determines that the delivery truck will be useful for another five years (ten years in total, as originally expected) and that the salvage value will increase to $10,000. Determine the depreciation expense for the final five years of the assets life, and create the journal entry for years 6â€“10 (the entry will be the same for each of the five years).
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The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?