Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs associated with the two alternatives are summarized as follows: Purchase cost (new) Remaining book value Overhaul needed now Multiple Choice Annual cash operating costs Salvage value (now) Salvage value (eight years from now) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Assuming a discount rate of 16%, what is the net present value of the cash flows associated with keeping the existing machine? $(52,651) $(69,651) $(48,651) Existing Machine New Machine $ 22,000 $(54,651) $ 15,000 $ 6,000 $ 5,000 $ 11,500 $ 2,000 $ 1,000 $ 7,000 $ 6,000

Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs associated with the two alternatives are summarized as follows: Purchase cost (new) Remaining book value Overhaul needed now Multiple Choice Annual cash operating costs Salvage value (now) Salvage value (eight years from now) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Assuming a discount rate of 16%, what is the net present value of the cash flows associated with keeping the existing machine? $(52,651) $(69,651) $(48,651) Existing Machine New Machine $ 22,000 $(54,651) $ 15,000 $ 6,000 $ 5,000 $ 11,500 $ 2,000 $ 1,000 $ 7,000 $ 6,000

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Assume that a company is choosing between two alternatives-keep an existing machine or replace it with a new machine. The costs associated with the two alternatives are
summarized as follows:
Purchase cost (new)
Remaining book value
Overhaul needed now
Multiple Choice
Annual cash operating costs
Salvage value (now)
Salvage value (eight years from now)
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.
If the company overhauls its existing machine, it will be usable for eight more years. If it buys the new machine, it will be used for eight years. Assuming a discount rate of 16%, what
is the net present value of the cash flows associated with keeping the existing machine?
O $(52,651)
O
O
O
$(69,651)
$(48,651)
Existing
Machine New Machine
$ 22,000
$(54,651)
$ 15,000
$ 6,000
$5,000
$ 11,500
$ 2,000
$ 1,000
$ 7,000
$ 6,000

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