17. Capital Company has decided todiscontinue a product produced on amachine purchased 4 years ago at acost of P70,000. The machine has acurrent book value of P30,000. Due totechnologically improved machinerynow available in the marketplace theexisting machine has no currentsalvage value. The company isreviewing the various aspects involvedin the production of a new product. Theengineering staff advised that theexisting machine can be used toproduce the new product. Other costsinvolved in the production of the newproduct will be materials of P20,000and labor priced at P5,000. Ignoringincome taxes, the costs relevant to thedecision to produce or not to producethe new product would be *Ph 25,000Ph 55,000Ph 30,000O Ph 95,000

Cost relevant to the decision to produce the new product includes all the expenditures that are…

Answered: 17. Capital Company has decided to…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Metals has a machine sitting idle in its warehouse. The machine originally cost $213,000, has a current book value of $32,300, has a scrap metal value of $13,000, and a market value of $46,900. The machine is totally paid for. What value should be placed on this machine if it is used for a new project?
-S Garcia Company has 10,500 units of its product that were produced at a cost of $157,500. The units were damaged in a rainstorm. Garcia can sell the units as scrap for $21,000, or it can rework the units at a cost of $39,500 and then sell them for $52,000. (a) Prepare a scrap or rework analysis of income effects. (b) Should Garcia sell the units as scrap or rework them and then sell them? (a) Scrap or Rework Analysis Revenue from scrapped/reworked units Cost of reworked units Income Incremental income (b) The company should: Scrap Rework
14. As a result of a downturn in the economy, Optiplex Corporation has excess productive capacity. On January 1, Year 3, Optiplex signed a special order contract to manufacture custom-design generators for a new customer. The customer requested that the generators be ready for pickup by June 15, Year 3, and guaranteed it will take possession of the generators by July 15, Year 3. Optiplex has incurred the following direct costs related to the custom-design generators: Cost to complete the design of the generators $ 3,000 Purchase price for materials and parts 80,000 Transportation cost to get materials and parts to manufacturing facility 2,000 Direct labor (10,000 labor hours at $12 per hour) 120,000 Cost to store finished product (from June 15 to June 30) 2,000 Because of the company's inexperience in manufacturing generators of this design, the cost of materials and parts included an abnormal amount of waste totaling $5,000. In addition to direct costs, Optiplex applies variable and…
Sheridan Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Sheridan Roofing spent $63,500 refurbishing the lift. It has just determined that another $53,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $180,500. The company estimates that both lifts would have useful lives of 6 years. The new lift is more efficient and thus would reduce operating expenses from $97,000 to $63,500 each year. Sheridan Roofing could also rent out the new lift for about $8,500 per year. The old lift is not suitable for rental. The old lift could currently be sold for $21,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 6 years. Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a…
The production manager on the Ofon Phase 2 offshore platform operated by Total S.A. must purchase specialized environmental equipment or an equivalent service. The first cost is $250,000 with an AOC of $66,000. The manager has let it be known that he does not care about the salvage value because he thinks it will make no difference in the decision-making process. His supervisor estimates the salvage might be as high as $100,000 or as low as $10,000 in 3 years, at which time the equipment will be unnecessary. Alternatively, a subcontractor can provide the service for $165,000 per year. The total offshore project MARR is 13% per year. Determine if the decision to buy the equipment is sensitive to the salvage value. The annual worth of high salvage value is $______________ 142,525 incorrect.. The annual worth of low salvage value is $_______________ 168,940 incorrect.. Decision is sensitive…
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 $181, 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 $28,000 to $73, 500 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 10%. What is the NPV if the firm replaces the old welder with the new one? Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign. F1 Inflation Adjustments The Rodriguez Company is…
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?
Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in that environment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88,000, and its operating cost for the next year is expected to be $47,000. A more corrosion-resistant challenger will cost $236,000 with an operating cost of $48,000 per year. It is expected to have a $50,000 salvage value after its 10- year ESL. At an interest rate of 8% per year, what minimum replacement value would render the challenger attractive? The minimum replacement value that would render the challenger attractive is $ |
Darcy Roofi ng is faced with a decision. The company relies very heavily onthe use of its 60-foot extension lift for work on large homes and commercial properties.Last year, Darcy Roofi ng spent $60,000 refurbishing the lift. It has just determined thatanother $40,000 of repair work is required. Alternatively, it has found a newer used liftthat is for sale for $170,000. The company estimates that both lifts would have useful livesof 6 years. The new lift is more effi cient and thus would reduce operating expenses byabout $20,000 per year. Darcy Roofi ng could also rent out the new lift for about $10,000per year. The old lift is not suitable for rental. The old lift could currently be sold for$25,000 if the new lift is purchased. Prepare an incremental analysis showing whether thecompany should repair or replace the equipment.
Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $511,000 or a new model 220 machine costing $471,000 to replace a machine that was purchased 7 years ago for $503,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $471,000 in the new machine, the money could be invested in a project that would return a total of $479,000. In making the decision to invest in the model 220 machine, the opportunity cost was: Multiple Choice $503,000 $471,000 $511,000 $479,000
Because it fumes at room temperatures, hydrochloric acid creates a very corrosive work environment. A machine working in that environment is deteriorating quickly and can be used for only one more year, at which time it will be scrapped with no salvage value. It was purchased 3 years ago for $88.000, and its operating cost for the next year is expected to be $56,000. A more corrosion-resistant challenger will cost $238,000 with an operating cost of $46,000 per year. It is expected to have a $50,000 salvage value after its 10-year ESL. At an interest rate of 14% per year, what minimum replacement value would render the challenger attractive? The minimum replacement value that would render the challenger attractive is $128498.7
Thornton Corporation is considering the elimination of one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold. $ 85,000 165,000 53,000 Advertising expense Supervisory salaries Allocation of companywide facility-level costs Original cost of building Book value of building Market value of building Maintenance costs on equipment Real estate taxes on building 115,000 64,000 83,000 80,000 8,000 Required Determine the amount of avoidable cost associated with the segment. Avoidable cost

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