Adequate information: Market value = $2,800,000 Book value = $1,600,000 Maintenance cost (Saving) of current machine = $855,000 Economic life of current machine = 5 years Depreciation of current machine = $320,000 Pre-tax salvage value of current machine = $140,000 Initial cost of new machine = $4,500,000 Economic life of new machine = 5 years Pre-tax salvage value of new machine = $900,000 Maintenance cost (Saving) of new machine = $350,000 Depreciation of new machine = $900,000 Tax rate = 21% or 0.21 Appropriate discount rate, r = 8% or 0.08 To compute: Whether the new machine should be bought by the company. Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow .

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Answer 1

Question

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

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Answer 2

Question

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

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Answer 3

Question

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

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Answer 4

Question

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

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Answer 5

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 6

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 7

Chapter 6, Problem 30QAP

Summary Introduction

Adequate information:

Market value = $2,800,000

Book value = $1,600,000

Maintenance cost (Saving) of current machine = $855,000

Economic life of current machine = 5 years

Depreciation of current machine = $320,000

Pre-tax salvage value of current machine = $140,000

Initial cost of new machine = $4,500,000

Economic life of new machine = 5 years

Pre-tax salvage value of new machine = $900,000

Maintenance cost (Saving) of new machine = $350,000

Depreciation of new machine = $900,000

Tax rate = 21% or 0.21

Appropriate discount rate, r = 8% or 0.08

To compute: Whether the new machine should be bought by the company.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQ Ch. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQ Ch. 6 - Prob. 6CQ Ch. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQ Ch. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...

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