A chemical company is considering replacing a batch reactor with a continuous reactor. The old unit cost $40,000 when new 5 years ago, and depreciation has been charged on a straightline basis using an estimated service life of 10 years with a final salvage value of $1000. The new unit would cost $70,000. It would save $15,000 per year in expenses not including depreciation. The straight-line depreciation period is taken to be 10 years with a zero salvage value. All costs other than those for labor, insurance, taxes, and depreciation may be assumed to be the same for both units. The old unit can now be sold for $5000. Income tax is 35 percent per year. If the after-tax minimum acceptable return on any investment is 15 percent. should the replacement be made?
A chemical company is considering replacing a batch reactor with a continuous reactor. The old unit cost $40,000 when new 5 years ago, and depreciation has been charged on a straightline basis using an estimated service life of 10 years with a final salvage value of $1000. The new unit would cost $70,000. It would save $15,000 per year in expenses not including depreciation. The straight-line depreciation period is taken to be 10 years with a zero salvage value. All costs other than those for labor, insurance, taxes, and depreciation may be assumed to be the same for both units. The old unit can now be sold for $5000. Income tax is 35 percent per year. If the after-tax minimum acceptable return on any investment is 15 percent. should the replacement be made?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please answer fast I will rate for you sure....
Transcribed Image Text:A chemical company is considering replacing a
batch reactor with a continuous reactor. The old
unit cost $40,000 when new 5 years ago, and
depreciation has been charged on a straightline
basis using an estimated service life of 10 years
with a final salvage value of $1000. The new
unit would cost $70,000. It would save $15,000
per year in expenses not including depreciation.
The straight-line depreciation period is taken to
be 10 years with a zero salvage value. All costs
other than those for labor, insurance, taxes, and
depreciation may be assumed to be the same
for both units. The old unit can now be sold for
$5000. Income tax is 35 percent per year. If the
after-tax minimum acceptable return on any
investment is 15 percent. should the
replacement be made?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education