The Briggs and Stratton Commercial Division designs and manufacturers small engines for golf turf maintenanceequipment. A robotics-based testing system with support equipment will ensure that their new signature guaranteeprogram entitled "Always Insta-Start" does indeed work for every engine produced.First cost of equipmentAOC per YearSalvage ValuePull System$-1450000$-780000$125000Push System$-2550000$-580000$130000Estimated Life8 years8 yearsDetermine the salvage value for the push system that will make the company indifferent to the two systems. Also, MARR = 9.00% peryear.The salvage value for the push system is determined to be $in $1000 units.

ParticularsPull systemPush SystemFirst cost of equipment-$1,450,000-$2,550,000AOC per…

Answered: The Briggs and Stratton Commercial…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2TP: Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new...

See similar textbooks

Similar questions

Your manager has asked you to advise your client Kofi Gyato, owner and director of Kofi Gyato Limited, on the implications of the proposed transaction.Your client has identified an opportunity to develop his business by manufacturing the products which he sells. To do this he would need to buy a machine which will have an expected life of ten years. He has received this quotation for the machine.GHȼPrice of machine70,000Delivery and installation3,500Commissioning costs1,500Annual maintenance costs3,500Required:Prepare a report to your client. Your report should:(a) Explain the difference between capital and revenue expenditure, and how each type of expenditure affects the accounts of a business.(b) Indicate which of the costs of the machine should be considered as capital cost and which should be considered as revenue cost.(c) Define depreciation and explain how the accounting entries for depreciation affect each element of the accounting equation.(d) Indicate:(i) What the annual…
Polaris Industries wishes to purchase a multiple-use in-plan ”road test” simulator that can be used for ATVs, motorcycles, and snowmobiles. It takes digital data from relatively short drives on a desired surface - from smooth to exceptionally harsh - and simulates the ride over and over while the vehicle is mounted to a test stand under load. It can run continuously if desired and provides opportunities to redesign in areas of poor reliability. It costs $128,000 and its market value decreases 30% each year. Operating costs are modest; however, maintenance costs can be significant due to the rugged use. O&M in the first year is expected to be 10,000, increasing 25% each subsequent year. MARR is 15%. What is the optimum replacement interval? Show screen shots of any formulas used in Excel.
Austins cell phone manufacturer wants to upgrade their product mix to encompass an exciting new feature on their cell phone. This would require a new high-tech machine. You are excited about his new project and are recommending the purchase to your board of directors. Here is the information you have compiled in order to complete this recommendation: According to the information, the project will last 10 years and require an initial investment of $800,000, depreciated with straight-line over the life of the project until the final value is zero. The firms tax rate is 30% and the required rate of return is 12%. You believe that the variable cost and sales volume may be as much as 10% higher or lower than the initial estimate. Your boss understands the risks but asks you to explain the alternatives in a brief memo to the board, Write a memo to the Board of Directors objectively weighing out the pros and cons of this project and make your recommendation(s).
A mechanical engineer is considering two robots for improving materials handling in the production of rigid shaft couplings that mate dissimilar drive components. Robot X has a first cost of $84,000, an annual maintenance and operation (M&O) cost of $31,000, a $40,000 salvage value, and will improve net revenues by $96,000 per year. Robot Y has a first cost of $146,000, an annual M&O cost of $28,000, a $47,000 salvage value, and will increase net revenues by $119,000 per year. Which one should be selected on the basis of a rate of return analysis if the company’s MARR is 15% per year? Use a three-year study period.
AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineers. Solve, a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $345,000; market value at end of year six = $120,000; annual revenues = $120,000; annual expenses = $8,000; equipment life = 6 years; effective income tax rate = 50%; and after-tax MARR = 10% per year. MACRS depreciation will be used with a five-year recovery period. b. Compute the PW of the equipment’s ATCFs. Is youranswer in Part (a) the same as your answer in Part (b)?
Polaris Industries wishes to purchase a multiple-use in-plant ‘‘road test’’ simulator that can be used for ATVs, motorcycles, and snowmobiles. It takes digital data from relatively short drives on a desired surface—from smooth to exceptionally harsh—and simulates the ride over and over while the vehicle is mounted to a test stand under load. It can run continuously if desired and provides opportunities to redesign areas of poor reliability. It costs $128,000, and its market value decreases by 30 percent each year. Operating costs are modest; however, maintenance costs can be significant due to the rugged use. O&M in the first year is expected to be $10,000, increasing by 25 percent each subsequent year. MARR is 15 percent. What is the optimum replacement interval?
Jack McGuire has been with Bulk Productions Group (BPG) for 14 years. McGuire decides to start slow with a project testing the increased automation of their horse feed line. Below are the projected cost of the expansion in automation, given a 5 year useful life of the robotic equipment: Direct Cost of Automation Purchase price of new robotic equipment $1,450,000 Sales tax on equipment $87,000 Shipping cost of equipment $63,000 Equipment installation $175,000 Software $98,000 Initial system and equipment testing $25,000 Equipment scrap value after five years $70,000 Annual Warranty Service Contract $21,000 robotics proposal one plant supervisor position with a salary of $98,000 per year. Two machine will need to be hired at $41,000 each. The automation and related electronics will increase energy usage by $126,000 per year. The software will create an expected savings of $210,000 per year Automation efficiencies will create a…
Jack McGuire has been with Bulk Productions Group (BPG) for 14 years. McGuire decides to start slow with a project testing the increased automation of their horse feed line. Below are the projected cost of the expansion in automation, given a 5 year useful life of the robotic equipment: Direct Cost of Automation Purchase price of new robotic equipment $1,450,000 Sales tax on equipment $87,000 Shipping cost of equipment $63,000 Equipment installation $175,000 Software $98,000 Initial system and equipment testing $25,000 Equipment scrap value after five years $70,000 Annual Warranty Service Contract $21,000 robotics proposal one plant supervisor position with a salary of $98,000 per year. Two machine will need to be hired at $41,000 each. The automation and related electronics will increase energy usage by $126,000 per year. The software will create an expected savings of $210,000 per year Automation efficiencies will create a…
You have two machines under consideration for an improved automated wrapping process for Snickers Fun Size candy bars as detailed below. (a) Using an AW analysis, determine which should be selected at i = 15% per year. (b) Assume you want machine D to be selected and are willing to extend its estimated life, if necessary. Perform this analysis to ensure D’s selection using factors or a spreadsheet. Machine C D First cost, $ −40,000 −65,000 Annual cost, $/year −10,000 −12,000 Salvage value, $ 12,000 25,000 Life, years 3 6
Raytheon wishes to use an automated environmental chamber in themanufacture of electronic components. The chamber is to be used for rigorous reliability testing and burn-in. It is installed for $1.4 million and will have a salvage value of $200,000 after 8 years. Its use will create an opportunity to increase sales by $650,000 per year and will have operating expenses of $250,000 per year. Corporate income-tax rate is 25%. Develop tables using a spreadsheet to determine the ATCF for each year and theafter-tax PW, AW, IRR, and ERR if the chamber is kept for 8 years. After-tax MARR is 10%. a. Use straight-line depreciation (no half-year convention). b. Use MACRS-GDS and state the appropriate property class. c. Use double declining balance depreciation (no half-year convention, no switching).
"An industrial engineer proposed the purchase of an RFID Ford Asset Tracking System for the company's warehouse and weave rooms. The engineer felt that the purchase would provide a better system of locating cartons in the warehouse by recording the locations of the cartons and storing the data in the computer. The estimated investment, annual operating and maintenance costs, and expected annual saving are as follows: Costof equipment and installation: $125.200 Project life: 5 years Expected salvage $22,000 Investment in working capital (fully recoverable at the end of the project life ):$27000 Expected annual savings on labor and materials $52700 Expected annual expenses: $6,800 Depreciation method :five year MACRS As a part of this project, the firm will take a loan of $29,000 to be repaid in three equal annual payments at 13.2% interest. The firm's marginal tax rate is 21%. Determine the IRR of the RFID system. Express your answer as a percentage rounded to the nearest tenth of a…
A process control manager is considering two robots to improve materials handling capacity in the production of rigid shaft couplings that mate dissimilar drive components. Robot X has a first cost of $84,000, an annual M&O cost of $31,000, a $40,000 salvage value, and will improve revenues by $96,000 per year. Robot Y has a first cost of $146,000, an annual M&O cost of $28,000, a $47,000 salvage value, and will increase revenues by $119,000 per year. The company’s MARR is 15% per year and it uses a 3-year study period for economic evaluations. Which one should the manager select (a) on the basis of ROR values, and (b) on the basis of the incremental ROR value? (c) Which is the correct selection basis? Perform the analysis by hand or spreadsheet, as instructed.

SEE MORE QUESTIONS

Recommended textbooks for you

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Cornerstones of Cost Management (Cornerstones Ser…

Accounting

ISBN:

9781305970663

Author:

Don R. Hansen, Maryanne M. Mowen

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS