Accounting Question please solve Bach Company paid $120,000 to purchase a machine on January 1, 2012. In 2014, a technologicalbreakthrough resulted in the development of a new machine that costs $150,000. The old machinecosts $50,000 per year to operate, but the new machine could be operated for only $18,000 peryear. The new machine, which will be available for delivery on January 1, 2015, has an expecteduseful life of four years. The old machine is more durable and is expected to have a remaininguseful life of four years. The current market value of the old machine is $40,000. The expectedsalvage value of both machines is zero.Required:Calculate the total avoidable costs in keeping the old machine and buying a new machine.

Step 1: Define Avoidable CostUnavoidable cost can be defined as a cost that can be avoided by a…

Answered: Bach Company paid $120,000 to purchase…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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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?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
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?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
A company is considering replacing a machine (defender) that was boughtsix years ago for $50,000 and has now malfunctioned. The machine can be repaired toextend its life by Öve more years. If repaired, the machine will require an operating costof $10,000 per year. If it is replaced, the new machine (challenger) will cost $44,000, willlast for six years, and will have operating expenses of $5,000 per year. The challengerwill have zero salvage value at the end of its six year life. The malfunctioned defendercan be sold at a current market value of $15,000. If MARR is 12% per year, what isthe maximum amount that the company should spend to repair the existing machineinstead of switching to the challenger? Use the outsider viewpoint method. (Note: Allvalues are before taxes, not tax calculations are necessary). please dont use excell
Antara Ltd. is considering the purchase of a new machine for the production of latex. The machine costs $500,000. The machine will be usable for ten years, at which time it will become worthless. Antara plans to update to a new model in five years when it will be sold for $100,000. Annual revenues from the new machine are expected to be $130,000 per year for the first four years of use and $95,000 in Year 5. The company uses the straight-line depreciation method for its non-current assets. The company's cost of capital is 10%. Required: a) Calculate the Accounting Rate of Return (ARR) for the new machine. (Round your answer to two decimal places). b) Calculate the Payback Period for the new machine (Round your answer to two decimal places). c) Calculate the Net Present Value (NPV) for the new machine. Show your workings.
The XYZ company is thinking about upgrading their 5-year-old machine with a new one. The machine was initially purchased for $50,000, with a projected lifespan of 10 years. The operation and maintenance cost of the old machine began at $500 in year 1 and has increased by $100 each year. This is predicted to continue until the end of the machine's useful life. The estimated salvage value if sold now is $15,000, or $10,000 at the end of year 10. The current yearly revenue with this machine is $15000The new machine will initially be purchased for $60,000 with a lifespan of 8 years. The first year's operating and maintenance cost will be $1500 due to installation, will be to $500 in the second year, then increase by $50 per year until the end of useful life. The yearly revenue is estimated at $17000 for the new machine, with a salvage value of $15000 at the end of 8 years. Both machines are depreciable with CCA (30%), MARR is 20%, and the tax rate is 40%. Should the XYZ company replace the…
Special Instrument company is considering replacing its machine with a new model that sells for $40,000, the cost of installation is $6,000. The old machine has been fully depreciated and has a $2500 salvage value. The new machine will be depreciated as a 3-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years the new machine is expected to have a $1500 salvage value. What is the NPV for this project if Special Instrument has a required rate of return of 12% and a marginal tax rate of 35%? Operating costs are not expected to increase from the current level of $8,000 per year. Briefly Discuss if you accept or reject the new machine and why.
A company is considering buying a new bottle-capping machine. The initial cost of the machine is $1.2M and it has a 10-year life. Monthly maintenance costs are expected to be $2000 per month for the first 7 years and $2500 per month for the remaining years. The machine requires a major overhaul costing $100,000 at the end of the fifth year of service. Assume that all these costs occur at the end of the appropriate period. (a) What is the future value of all the costs of owning and operating this machine if the nominal interest rate is 9% compounded monthly? (b) Bottle caps are in the top 10 items found in beach cleanups. What are other items on such lists, and what are beach cities doing to reduce this debris?
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $50,000. Its operating costs are $20,000 a year, but in five years the machine will require a $20,000 overhaul. Thereafter, operating costs will be $30,000 until the machine is finally sold in year 10 for $5,000. The older machine could be sold today for $25,000. If it is kept, it will need an immediate $20,000 overhaul. Thereafter, operating costs will be $30,000 a year until the machine is finally sold in year 5 for $5,000. Both machines are fully depreciated for tax purposes. The company pays tax at 35%. Cash flows have been forecasted in real terms. The real cost of capital is 12%. Which machine should United Automation sell? Explain the assumptions underlying your answer.
XYZ Co. is considering the purchase of a new machine. The machine will cost $250,000 and requires installation costs of $25,000. The existing machine can be sold currently for $25,070. It was purchased three years ago for $83,000 and depreciated using MACRS (5 years). It can be operated for another four years. Its market value at that time, if sold, would be $14,000. The new machine has expected life of five years and expected to provide operating cash savings of $88,000 a year for 2 years and $50,000 a year for the next two years before depreciation and taxes (EBD&T). After four years the new machine can be sold for $12,750. To support the increased business resulting from the purchase of new machine, A/R will increase by $12,000; inventory will increase by $25,000 and current liabilities by $41,000. The cost of capital is 17% and the tax rate is 40%. What is NPV? Question 9 options: $56,900 -$65,880 -$63,118 -$76,890
A presently owned machine can last 3 more years, if properly maintained at a cost of $15,000 per year. Its AOC is $31,000 per year. After 3 years, it can be sold for an estimated $9000. A replacement costs $80,000 with a $10,000 salvage value after 3 years and an operating cost of $19,000 per year. Different vendors have offered $10,000 and $20,000, respectively, for the current system as trade-in for the replacement machine. At i = 12% per year, perform a replacement study and determine whether the defender should be retained or replaced.

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