Salsa Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 89,300 Remaining useful life 10 years Useful life 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. How much is the sunk cost?
Q: B2B Co. is considering the purchase of equipment that would allow the company to add a new product…
A: SOLUTION- NET PRESENT VALUE- IT IS THE DIFFERENCE BETWEEN PRESENT VALUE OF CASH INFLOWS AND PRESENT…
Q: A company is planning to purchase a machine that will cost $54,000 with a six-year life and no…
A: Payback period refers to the time period that is required to recover the initial cost. With the help…
Q: A machine purchased 1 year ago for $85,000 costs more to operate than anticipated. When purchased,…
A: Value of P: P = 85000 - 10000 P = $ 75000. Value of N = 5 years.
Q: GoHigher is planning to purchase a machine that will cost $24,000. It has a six-year life with no…
A: The payback period is the number of periods in which the initial investment will be recovered. It…
Q: A business firm is contemplating to purchase new equipment. The purchase price is 60,000 and its…
A: The question pertains to the concept of capital budgeting tools and time value of money and has been…
Q: The Erickson Toy Corporation currently uses an injection moulding machine that was purchased 2 years…
A: The capital budgeting techniques of the company is helping in evaluation of different projects.…
Q: A certain corn mill decided to sell its old engine which has been used for 5 years costing P7,200…
A: SOLUTION DEPRECIATION REPRESENTS HOW MUCH OF AN ASSETS VALUE HAS BEEN USED.
Q: Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated…
A: Formula: Sunk cost = Equipment original cost - accumulated depreciation
Q: A company is planning to purchase a machine that will cost 240,000, have a six-year life, and be…
A: Answer is option d) 25%
Q: If money is worth 10% to the company, should the old machine be replaced or not and how much is the…
A: Initial cost of existing vertical boring machine is considered at P60,000 being the realizable value…
Q: Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.…
A: Net present value of machine can be calculated as initial investment done minus present value of…
Q: ABC Corp is considering replacing equipment that originally cost $600,000 and has accumulated…
A: sunk cost: formula =originally cost - accumulated depreciation - Amount Recovered on sale
Q: It is possible to replace a used machine with book value of $380,000 and remaining useful life five…
A:
Q: Arvada Co. is considering the purchase of equipment that would allow the company to add a new…
A: Capital budgeting is a technique of evaluation through which profitability of new project or…
Q: Speed Runner Company has acquired huge machinery at a cost of $150,000 (with no breakdown of the…
A: This question deals with the calculation of cost of machinery that needs to be recorded. IAS 16,…
Q: A company is planning to purchase a machine that will cost P240,000, have a six-year life, and be…
A: Net income = P 30000 n = 6 years Initial cost (I) = P 240000 Let r = Rate of return
Q: ABC Company is considering replacing its machine with a newer one. The old machine has a book value…
A: Given: Purchase price = $1,193,422 Installation cost = $3,500 Net working capital = $11,000 Sale…
Q: 1. Compute straight-line depreciation for each year of this new machine's life. 2. Determine…
A: Since you have asked a question with multiple sub parts, we will solve the first three sub parts for…
Q: Bergeron Company is considering replacing equipment with a cost of $30,000, accumulated depreciation…
A: Property, Plant, and Equipment: Property, Plant, and Equipment refers to the fixed assets, having a…
Q: Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following…
A:
Q: Commercial Hydronics is considering replacing one of its larger control devices. A new unit sells…
A: NPV means net value of benefits arises from the project during the life of the project. It is simply…
Q: A company with $800,000 in operating assets is considering purchasing a machine that costs $300,000…
A: Payback period: Payback period is the length of time in which an investment reaches its break-even…
Q: Freida Company is considering an asset replacement project of replacing a control device. This old…
A: Replacement Decisions are the decisions which are taken to replace the old machine with new machine…
Q: A machine costing P 95,000 is expected to produce 10,000 units of a certain products during its…
A: Depreciation on Fixed assets : Depreciation expense is considered as the charge against the…
Q: The RHIANE Corporation is planning to add a new product line to its present business. The new…
A: SOLUTION- THE LIQUIDITY AND YIELD THEORIES ARE THOSE THAT MAKES THE INVESTOR TO DEMANDS MORE…
Q: Flynn Corporation is debating whether to purchase a new computerized production system. Tne system…
A:
Q: mplating
A: (a) Calculation of Annual cash in flow Particular Detail Amount Revenue from car 100000…
Q: If the machine is purchased, annual revenues are expected to be $100,000 and annual operating…
A: Pay back period is number of years required to recover initial investment of machine.
Q: Calculate the cash inflows from the sale of the old machine.
A: CASH INFLOWS Cash inflows means money that is going into the business or money…
Q: B2B Co. is considering the purchase of equipment that would allow the company to add a new product…
A: Calculation Net present value:
Q: Vaughn Manufacturing is considering the replacement of a piece of equipment with a newer model. The…
A: Old equipment New equipment Difference Purchase price 367,500 -367,500 Sales value…
Q: B2B Co. is considering the purchase of equipment that would allow the company to add a new product…
A: Net present value is the difference between the present value of cash flow and initial investment…
Q: B2B Co. is considering the purchase of equipment that would allow the company to add a new product…
A: The question is based on the concept of Financial Management. The project is said to be viable if…
Q: The Tenang Corporation is using a machine that originally cost RM88,000.00. The machine is being…
A: "Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: A company is considering replacing an old machine. The trade-in value of the old machine is curently…
A: To find the equivalent uniform annual cost, we will fist have to determine the NPV of both the…
Q: Freida Company is considering an asset replacement project of replacing a control device. This old…
A: Cost of new device = $42000 Cost of shipping & installation for new device = $16000 Sale…
Q: if a company is considering buying a system that costs 450,000 with an estimated 10-year life and a…
A: Annual cash outflow = incremental expenses - depreciation = 123000 - 38000 = 85,000
Q: GoHigher is planning to purchase a machine that will cost $24,000. It has a six-year life with no…
A: Cash payback method: Cash payback period is the expected time period which is required to recover…
Q: Delaney Company is considering replacing equipment that originally cost $600,000 and has accumulated…
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: Freida Company is considering an asset replacement project of replacing a control device. This old…
A: Operating cashflows at the end of year 2 = (Incremental Revenue + Cost Saving - Depreciation) *…
Q: The Bigbee Bottling Company is contemplating the replacementof one of its bottling machines with a…
A: Hey, since there are multiple subparts posted, we will answer the first three subparts. If you want…
Q: replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation…
A: Depreciation: It refers to the gradual decrease in the value of an asset due to normal wear and tear…
Q: ntana Rey is considering the purchase of equipment for Business Solutions that would allow the…
A: Solution Given Cost of equipment (initial investment) 280000 Life 5 years Net income…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- 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?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?St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost 182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from 27,000 to 74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
- 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?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)?Thaler Company bought 26,000 of raw materials a year ago in anticipation of producing 5,000 units of a deluxe version of its product to be priced at 75 each. Now the price of the deluxe version has dropped to 35 each, and Thaler is now deciding whether to produce 1,500 units of the deluxe version at a cost of 48,000 or to scrap the project. What is the opportunity cost of this decision? a. 175,000 b. 375,000 c. 48,000 d. 26,000
- 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?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.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.
- Utica Machinery Company purchases an asset for 1,200,000. After the machine has been used for 25,000 hours, the company expects to sell the asset for 150,000. What is the depreciation rate per hour based on activity?Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?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. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.