A machine purchased three years ago for $311,000 has a current book value using straight-line depreciation of $180,000; its operatingexpenses are $39,000 per year. A replacement machine would cost $222,000, have a useful life of nine years, and would require$10,000 per year in operating expenses. It has an expected salvage value of $79,000 after nine years. The current disposal value ofthe old machine is $89,000; if it is kept 9 more years, its residual value would be $17,000.RequiredCalculate the total costs in keeping the old machine and purchasing a new machine. Should the old machine be replaced?Keep Old Purchase NewMachineMachineTotal costsShould the old machine be replaced?

Machinery costs can be classified into two domains Annual ownership costs Operating Costs Annual…

Answered: A machine purchased three years ago for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Maxwell Manufacturing is contemplating the purchase of a new machine to replace a machine that has been in use for seven years. The old machine has a net book value (NBV) of $51,000 and still has five years of useful life remaining. The old machine has a current market value of $5,100, but is expected to have no market value after five years. The variable operating costs and depreciation expenses (straight-line basis) are $120,000 per year. The new machine will cost $86,000, has an estimated useful life of five years with zero disposal value after five years, and an annual operating expense of $101,000 (including straight-line depreciation). Considering the five years in total and ignoring the time value of money and income taxes, what is the difference in total relevant costs for the two decision alternatives (keep vs. replace)?
The Carico Company recently purchased a new machine for its factory operations at a cost of $921,250. The investment is expected to generate $250,000 in annual cash flows for a period of six years. The required rate of return is 14%. The old machine has a remaining life of six years. The new machine is expected to have zero value at the end of the six-year period. The disposal value of the old machine at the time of replacement is zero. Required: What is the internal rate of return? a. 18% b. 16% c. 15% d. 17%
A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $50,000. The firm's tax rate is 35%, and the appropriate cost of capital is 14%. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest whole dollar.$ What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest whole dollar. CF1 $ CF2 $…
Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $194,000 and will require $29,400 in installation costs. It will be depreciated under MACRS using a 5-year recovery period Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% A $30,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a…
An existing asset that cost $16,000 twoyears ago has a market value of $12,000 today, anexpected salvage value of $2,000 at the end of itsremaining useful life of six more years, and annualoperating costs of $4,000. A new asset under consideration as a replacement has an initial cost of$10,000, an expected salvage value of $4,000 at theend of its economic life of three years, and annualoperating costs of $2,000. It is assumed that thisnew asset could be replaced by another one identical in every respect after three years at a salvagevalue of $4,000, if desired. Use a MARR of 11%,a six-year study period, and PW calculations todecide whether the existing asset should be replacedby the new one
Which values am I supposed to use for the depreciation?
A project has to sell a machine that is obsolete. The market department finds a buyer who is willing to pay $100, 000 for the machine. The machine was purchased 4 years ago for $1.1 million. The accounting department notes that the depreciation method for this machine is straight line, and the machine will be depreciated to zero over a five year time period after purchase. What is the machine's after - tax salvage value? Tax rate is 21%. Question 1 options: $1, 635.24 $2, 314.05 $142,000.00 - $2,784.62$289.26
Sunland Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $122,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $40,100. The new equipment can be bought for $175,880, including installation. Over its 10-year life, it will reduce operating expenses from $193,900 to $145,000 for the first six years, and from $204,800 to $191,300 for the last four years. Net working capital requirements will also increase by $20,700 at the time of replacement. It is estimated that the company can sell the new equipment for $24,900 at the end of its life. Since the new equipment's cash flows are relatively certain, the project's cost of capital is set at 9 %, compared with 15% for an average - risk project. The firm's maximum acceptable payback period is 5…
A company purchased a machine 6 years ago for $500m and a salvage value of $30m. The machine has a useful life of 18 years. Now, the company has found another machine with a price of $700m which generates $25m in cost savings and $12m in revenue. This machine has a useful life of 10 years with no salvage value. If the company chooses to purchase the new equipment, it can sell the old equipment for $400m. The company's tax rate is 21% and the discount rate is 17%. Calculate the cash flow in year 0 assuming the company purchases the new equipment, calculate the incremental cash flow per year and calculate the IRR and NPV of the equipment.
The Telephone Company of America purchased a numerically controlled production machine 5 years ago for $300,000. The machine currently has a trade-in value of $70,000. If the machine is continued in use, another machine, X, must be purchased to supplement the old machine. Machine X costs $200,000, has annual operating and maintenance costs of $40,000, and will have a salvage value of $30,000 in 10 years. If the old machine is retained, it will have annual operating and maintenance costs of $55,000 and will have a salvage value of $15,000 in 10 years. As an alternative to retaining the old machine, it can be replaced with Machine Y. Machine Y costs $400,000, has anticipated annual operating and maintenance costs of $70,000, and has a salvage value of $140,000 in 10 years. Using a MARR of 15%, a cash flow approach, and a present worth comparison, determine the preferred economic alternative.
A division of Virginia City Highlands Manufacturing is considering purchasing for $1,500,000 a machine that automates the process of inserting electronic components onto computer motherboards. The annual cost of operating the machine will be $50,000, but it will save the company $370,000 in labor costs each year. The machine will have a useful life of 10 years, and its salvage value in 10 years is estimated to be $300,000. Straight-line depreciation will be used in calculating taxes for this project, and the marginal corporate tax rate is 32 percent. If the appropriate discount rate is 12 percent, what is the NPV of this project?
Ralph’s Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1.3 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with financing the equipment purchase are estimated to be $50,000 per year. The expected salvage value of the machine at the end of 10 years is $80,000. The decision to add the new line of bow ties will require additional net working capital of $55,000 immediately, $30,000 at the end of year 1, and $10,000 at the end of year 2. RBW expects to sell $370,000 worth of the bow ties during each of the 10 years of product life. RBW expects the sales of its other ties to decline by $23,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $23,000 over the 10-year life of the proposed project. The cost of producing and selling the ties is estimated to be $70,000 per year.…

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