Paragraph Styles Ad 4. Asset Replacement Decision Birch Company owns a piece of equipment that cost $95,000, Currently, the equipment's book value is $43,000 and its expected remaining useful life is four years. The salvage value of the truck in 4 years is expected to be $20,000. Birch has the opportunity to purchase for $108,000 replacement equipment that is extremely efficient. In four years, the new equipment would have a salvage value of $75,000. Maintenance cost for the old equipment is expected to be $5,500 per year and maintenance on the new equipment is expected to be $2,500 per year. The old equipment is paid for but, in spite of being in good condition, can be sold for only $34,400 currently. Should Birch replace the old equipment with the new efficient equipment, or should it continue to use the old equipment until it wears out? Include your calculations with your answer. unour Answer:

Paragraph Styles Ad 4. Asset Replacement Decision Birch Company owns a piece of equipment that cost $95,000, Currently, the equipment's book value is $43,000 and its expected remaining useful life is four years. The salvage value of the truck in 4 years is expected to be $20,000. Birch has the opportunity to purchase for $108,000 replacement equipment that is extremely efficient. In four years, the new equipment would have a salvage value of $75,000. Maintenance cost for the old equipment is expected to be $5,500 per year and maintenance on the new equipment is expected to be $2,500 per year. The old equipment is paid for but, in spite of being in good condition, can be sold for only $34,400 currently. Should Birch replace the old equipment with the new efficient equipment, or should it continue to use the old equipment until it wears out? Include your calculations with your answer. unour Answer:

Name: ParagraphStylesAd4. Asset Replacement DecisionBirch Company owns a pi
Uploaded: 2024-03-05T11:50:36.000Z
Channel: Bartleby
Description: ParagraphStylesAd4. Asset Replacement DecisionBirch Company owns a piece of equipment that cost $95,000, Currently, the equipment's bookvalue is $43,000 and its expected remaining useful life is four years. The salvage value of thetruck in 4 years i

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Urquhart Global purchases a building to house its administrative offices for $500,000. The best estimate of the salvage value at the time of purchase was $45,000, and it is expected to be used for forty years. Urquhart uses the straight-line depreciation method for all buildings. After ten years of recording depreciation, Urquhart determines that the building will be useful for a total of fifty years instead of forty. Calculate annual depreciation expense for the first ten years. Determine the depreciation expense for the final forty years of the assets life, and create the journal entry for year eleven.
Depreciation Jensen Inc., a graphic arts studio, is considering the purchase of computer equipment and software for a total cost of $18,000. Jensen can pay for the equipment and software over three years at the rate of $6,000 per year. The equipment is expected to last 10 to 20 years, but because of changing technology, Jensen believes it may need to replace the system in as soon as three to five years. A three-year lease of similar equipment and software is available for $6,000 per year. Jensens accountant has asked you to recommend whether the company should purchase or lease the equipment and software and to suggest the length of time over which to depreciate the software and equipment if the company makes the purchase. Required Ignoring the effect of taxes, would you recommend the purchase or the lease? Why or why not? Referring to the definition of depreciation, what appropriate useful life should be used for the equipment and software?
Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.
2) The initial cost of a new m/c is $10,000. The annual operating cost is $1,000/yr for first 3 years, and then becomes $3,000/yr after that. The m/c needs a major repair at the end of 5th year, which costs $5,000. The m/c has 10 years useful life with salvage value of $4,000. Calculate EUAC for keeping the m/c for 10 years. (i=10%/yr)
Solve the below given Problem with (a) 50% bonus depreciation and (b) 100% bonus depreciation. Henredon purchases a highprecision programmable router for shaping furniture components for $190,000. It is expected to last 12 years and have a salvage value of $5,000. It will produce $45,000 in net revenue each year during its life. All dollar amounts are expressed in real dollars. Depreciation follows MACRS 7-year property, taxes are 25%, the real after-tax MARR is 10%, and inflation is 3.9%. Solve, a. Determine the actual after-tax cash flows for each year. b. Determine the PW of the after-tax cash flows. c. Determine the AW of the after-tax cash flows. d. Determine the FW of the after-tax cash flows. e. Determine the combined IRR of the after-tax cash flows. f. Determine the combined ERR of the after-tax cash flows. g. Determine the real IRR of the after-tax cash flows. h. Determine the real ERR of the after-tax cash flows.
onsider the following financial informationabout a retooling project at a computer manufacturing company:• The project costs $2.5 million and has a five-yearservice life.• The retooling project can be classified as sevenyear property under the MACRS rule.• At the end of the fifth year, any assets held for theproject will be sold. The expected salvage valuewill be about 10% of the initial project cost.• The firm will finance 40% of the project moneyfrom an outside financial institution at an interestrate of 10%. The firm is required to repay the loanwith five equal annual payments.• The firm’s incremental (marginal) tax rate on theinvestment is 35%.• The firm’s MARR is 18%.With the preceding financial information,(a) Determine the after-tax cash flows.(b) Compute the annual equivalent worth for thisproject.
The Baldwin Company has just purchased $40,900,000 of plant and equipment that has an estimated useful life of 15 years. The expected salvage value at the end of 15 years is $4,090,000. What will the book value of this purchase (exclude all other plant and equipment) be after its third year of use? (Use FASB GAAP) Select : 1 Save Answer $35,446,667 $32,720,000 $33,538,000 $29,448,000
A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A: Purchase Cost of Equipment 703,668700,000 Salvage Value 100,454100,000 Daily operating cost 501500 Economic life, years 10 Alternative B: Rental at 1,5751,500 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.
HI! I would need help with the question 3 of the attached project Thank you for your time