### Educational Content on Capital Investment Decision **Scenario:** The management of Ballard MicroBrew is considering purchasing an automated bottling machine for $67,000. This machine would replace an older piece of equipment that costs $18,000 per year to operate. In contrast, the new machine would cost only $8,000 per year to operate. The old machine could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value. **Required Calculations:** 1. **What is the annual depreciation expense associated with the new bottling machine?** 2. **What is the annual incremental net operating income provided by the new bottling machine?** 3. **What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?** 4. **What is the simple rate of return on the new bottling machine?** *(Round your answer to 1 decimal place, i.e., 0.123 should be considered as 12.3%.)* **Analysis (Table Format):** | 1. | **Depreciation expense** | | |----|----------------------------------------------|------------| | 2. | **Incremental net operating income** | | | 3. | **Initial investment** | | | 4. | **Simple rate of return** | **%** | This exercise helps learners to understand how to calculate and assess various financial metrics involved in capital budgeting and decision-making processes. These calculations contribute to making informed decisions on whether or not to invest in new technology, considering aspects like depreciation, operating income, and return on investment.
### Educational Content on Capital Investment Decision **Scenario:** The management of Ballard MicroBrew is considering purchasing an automated bottling machine for $67,000. This machine would replace an older piece of equipment that costs $18,000 per year to operate. In contrast, the new machine would cost only $8,000 per year to operate. The old machine could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value. **Required Calculations:** 1. **What is the annual depreciation expense associated with the new bottling machine?** 2. **What is the annual incremental net operating income provided by the new bottling machine?** 3. **What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?** 4. **What is the simple rate of return on the new bottling machine?** *(Round your answer to 1 decimal place, i.e., 0.123 should be considered as 12.3%.)* **Analysis (Table Format):** | 1. | **Depreciation expense** | | |----|----------------------------------------------|------------| | 2. | **Incremental net operating income** | | | 3. | **Initial investment** | | | 4. | **Simple rate of return** | **%** | This exercise helps learners to understand how to calculate and assess various financial metrics involved in capital budgeting and decision-making processes. These calculations contribute to making informed decisions on whether or not to invest in new technology, considering aspects like depreciation, operating income, and return on investment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:### Educational Content on Capital Investment Decision
**Scenario:**
The management of Ballard MicroBrew is considering purchasing an automated bottling machine for $67,000. This machine would replace an older piece of equipment that costs $18,000 per year to operate. In contrast, the new machine would cost only $8,000 per year to operate. The old machine could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value.
**Required Calculations:**
1. **What is the annual depreciation expense associated with the new bottling machine?**
2. **What is the annual incremental net operating income provided by the new bottling machine?**
3. **What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?**
4. **What is the simple rate of return on the new bottling machine?** *(Round your answer to 1 decimal place, i.e., 0.123 should be considered as 12.3%.)*
**Analysis (Table Format):**
| 1. | **Depreciation expense** | |
|----|----------------------------------------------|------------|
| 2. | **Incremental net operating income** | |
| 3. | **Initial investment** | |
| 4. | **Simple rate of return** | **%** |
This exercise helps learners to understand how to calculate and assess various financial metrics involved in capital budgeting and decision-making processes. These calculations contribute to making informed decisions on whether or not to invest in new technology, considering aspects like depreciation, operating income, and return on investment.
Expert Solution
Step 1
Method of Charging depreciation expense is as follows:
- Straight-Line Depreciation
- Units of Production Depreciation
- Sum-of-the-Years' Digits Depreciation
- Declining Balance Depreciation
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