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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Please solve this MCQs Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $464,000 or a new model 220 machine costing $405,000 to replace a machine that was purchased 10 years ago for $439,000. 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 $340,000 in the new machine, the money could be invested in a project that would return a total of $456,000.In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: $456,000 $464,000 $439,000 $405,000
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.
East Mill Pizzeria is closing its business. It sold its two-year- old pizza ovens to Marco's Italian Restaurant for $600,000. Originally, East Mill acquired the pizza ovens at a cost of $800,000. The ovens had an estimated useful life of 10 years, an estimated residual value of $50,000, and were depreciated using straight-line depreciation. Complete the requirements below for East Mill Pizzeria. Required: 1. Calculate the balance in the accumulated depreciation account at the end of the second year. Accumulated depreciation
Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, eight year life $40,000 Annual depreciation (straight line) 5,000 Annual manufacturing costs, excluding depreciation 12,400 Annual nonmanufacturing operating expenses 2,900 Annual revenue 35,400 Current estimated selling price of the machine 13,900 New Machine Cost of machines, six year life $59,000 Annual depreciation (straight line) 9,500 Estimated annual manufacturing cost, less depreciation 3,900 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative 1)…
Wildhorse's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $59,950 price tag for a new truck would represent a major expenditure. Wildhorse Austen, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Initial cost $59,950 Estimated useful life 8 years Net annual cash flows from towing $7,990 Overhaul costs (end of year 4) $5,970 Salvage value $12,000 Show Transcribed Text د Wildhorse's good friend, Rick Ryan, stopped by. He is trying to convince Wildhorse that the tow truck will have other benefits that Wildhorse hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Wildhorse tows them to her facility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Wildhorse the cost of plowing her parking lot. (Rick will give her a used plow blade for free if…
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…
Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $94,400, the accumulated depreciation is $37,800, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $196,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Operations Proposed Operations Sales $299,200 $299,200 Direct materials $102,000 $102,000 Direct labor 70,800 — Power and maintenance 6,600 34,900 Taxes, insurance, etc. 2,400 7,800 Selling and administrative expenses 70,800 70,800 Total expenses $252,600…
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…
Management of National Co. is considering whether to purchase a new model MX1 machine costing P460,000 or a new model MY2 machine costing P430,000 to replace a machine that was purchased 7 years ago for P258,000. The old machine was used to make product L360 until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model MY2 machine. It has less capacity than the new model MX1 machine, but its capacity is sufficient to continue making product L360. Management also considered, but rejected, the alternative of simply dropping product L360. If that were done, instead of investing P430,000 in the new machine, the money could be invested in a project that would return a total of P411,000. In making the decision to buy the model MY2 machine rather than the model MX1 machine, the differential cost was:
A business purchased a delivery truck 5 years ago at a cost of $45,000. It is now planning to replace that truck with a newer one, which would cost $60,000. The old truck has a trade-in value of approximately $12,500.(a1) How much of these truck costs represent sunk costs?

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