Differential AnalysisContinue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)April 29ContinueReplaceDifferentialwith OldOldEffectsMachineMachine(Alternative 2)(Alternative 1) (Alternative 2)Revenues:Proceeds from sale of old machineCosts:Purchase priceVariable production costs (8 years)Profit (loss)Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.b. What is the sunk cost in this situation?The sunk cost is $ Machine Replacement DecisionA company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a newmachine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the oldmachine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 peryear for 8 years.a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace old Machine (Alternative2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Solution: Introduction: The given question is based on the relevant costs on continuing or…

April 29 Continue Replace old Differential with Old Effects Machine Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable production costs (8 years) Profit (loss) etermine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. What is the sunk cost in this situation? he sunk cost is $

April 29 Continue Replace old Differential with Old Effects Machine Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable production costs (8 years) Profit (loss) etermine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. What is the sunk cost in this situation? he sunk cost is $

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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57
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Transactions Costs and the Efficiency of Alternative Remedies Scenario 1 (Assume it costs $300 to move Bridgman's equipment) No Move Move Bridgman $1,000 $700 Sturges $500 $1,200 No move is the status quo moving equipment results in a cooperative surplus of $
Celestial Crane Cosmetics is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Sales (units) 5,500 5,200 5,700 5,820 Sales price $42.57 $43.55 $44.76 $46.79 Variable cost per unit Fixed costs, excluding depreciation Accelerated depreciation rate $22.83 $22.97 $23.45 $66,750 $68,950 $69,690 33% 45% 15% $23.87 $68,900 7% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Celestial Crane Cosmetics pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project's net present value (NPV) is When using straight-line depreciation, the project's NPV is Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Celestial Crane Cosmetics turns it down. How much should Celestial Crane…