Seong Seng coachbuilders is considering purchasing a new machine to replace an old one. Cost of new machine. Purchase price $85,000 Installation & commissioning $10,000 The proposed new machine is to be depreciated using the straight- line method over its four year useful life with an estimated salvage value of $15,000. The proposed new machine is expected to increase sales and operating expenses and the amount is expected to be constant over the project’s 4 year life. Sales $65,000 Operating expenses $26,000 Seong Seng operating working capital is also expected to increase as follows: Inventory $12,000 Account receivable $8,000 Accounts $3,000 Account payable $6,000 The old, existing machine is also being depreciated using the straight-line method over its 6years of useful life towards zero salvage. It was purchased 2 years ago with a total depreciable value of $60,000. It can be sold today for $38,000. Seong Seng tax bracket is 40% and management uses a 20% required rate of return to evaluate this replacement project. Using the NPV and IRR criteria, is the project viable?
- Seong Seng coachbuilders is considering purchasing a new machine to replace an old one.
Cost of new machine.
Purchase price $85,000
Installation & commissioning $10,000
The proposed new machine is to be
The proposed new machine is expected to increase sales and operating expenses and the amount is expected to be constant over the project’s 4 year life.
Sales $65,000
Operating expenses $26,000
Seong Seng operating working capital is also expected to increase as follows:
Inventory $12,000
Account receivable $8,000
Accounts $3,000
Account payable $6,000
The old, existing machine is also being depreciated using the straight-line method over its 6years of useful life towards zero salvage. It was purchased 2 years ago with a total depreciable value of $60,000. It can be sold today for $38,000.
Seong Seng tax bracket is 40% and management uses a 20% required
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