Bergeron Company is considering replacing equipment with a costof $30,000, accumulated depreciation of $20,000, and a 2 yearremaining useful life. The new equipment has a cost of $42,000 anda useful life of 6 years. The seller has offered a trade-in allowance of$7,500. The new equipment is much more efficient. Bergeronprojects cost savings of $10,000 per year if the new equipment ispurchased. Which of the following is not relevant in decidingwhether to retain or replace equipment?O Cost of new equipment.O Book value of existing equipment.O Trade-in allowance of existing equipment.O Cost savings.2-57 PM11/10/2019hpendhomedeleteinsprt sc12fmholockbackspace

Property, Plant, and Equipment: Property, Plant, and Equipment refers to the fixed assets, having a…

Answered: Bergeron Company is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Acme Company plans to replace some obsolete equipment with new equipment that costs $232,000 and has a useful life of 16 years and a salvage value of $40,000. Acme expects that the new equipment will reduce operating costs (labor, energy, etc.) by $59,000 per year. Acme can sell the old equipment for $20,000. What is the simple rate of return on the investment in the new equipment? Round to one decimal place. 23.9% 21.6% 20.5% 22.2%
Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $892,800 is estimated to result in $297,600 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $130,200. The press also requires an initial investment in spare parts inventory of $37,200, along with an additional $5,580 in inventory for each succeeding year of the project. If the shop's tax rate is 22 percent and its discount rate is 19 percent, what is the NPV for this project?
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…
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 company is considering replacing a machine used in the manufacturing process with a new, more efficient model. The purchase price of the new machine is $150,000 and the old machine can be sold for $100,000. Output for the two machines is identical; they will both be used to produce the same amount of product for five years. However, the annual operating costs of the old machine are $18,000 compared to $10,000 for the new machine. Also, the new machine has a salvage value of $25,000, but the old machine will be worthless at the end of the five years. You are deciding whether the company should sell the old machine and purchase the new model. You have determined that an 8% rate properly reflects the time value of money in this situation and that all operating costs are paid at the end of the year. For this initial comparison you ignore the effect of the decision on income taxes. Required: What is the incremental cash outflow required to acquire the new machine? What is the present…
A new production system for a factory is to be purchased and installed for $135331. This system will save approximately 300,000 kWh of electric power each year for a 6-year period. Assume the cost of electricity is $0.10 per kWh, and factory MARR is 15% per year, and the salvage value of the system will be $8662 at year 6. Using the PW method to analyzes if this investment is economically justified A- calculate the PW of the above investment and insert the result below.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $360,500 and will generate $100,000 per year for 5 years. Calculate the IRR for this piece of equipment. (Click here to see present value and future value tables) fill in the blank 1%
Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $530,000 is estimated to result in $220,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $89,000. The press also requires an initial investment in spare parts inventory of $26,000, along with an additional $3,100 in inventory for each succeeding year of the project. The shop’s tax rate is 35 percent and its discount rate is 9 percent. Refer to the MACRS schedule. Calculate the NPV of this project.
Purple Haze Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $526,528 is estimated to result in some amount of annual pretax cost savings. The press will have an aftertax salvage value at the end of the project of $86,879. The OCFS of the project during the 4 years are $170,654, $199,481, $175,232 and $169,873, respectively. The press also requires an initial investment in spare parts inventory of $23, 482, along with an additional $1,631 in inventory for each succeeding year of the project. The shop's discount rate is 6 percent. What is the NPV for this project?
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method.a. What is the net cash flow in year 0 (i.e., initial outlay)?b. What are the net cash flows after taxes in each of the next 10 years?c. What is the NPV of the investment?d. Should Alliance replace its existing drill press?
Ivanhoe Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck(not the least of which is that it runs). The new truck would cost $57,186. Because of the increased capacity, reduced maintenancecosts, and increased fuel economy, the new truck is expected to generate cost savings of $8,100. At the end of eight years, thecompany will sell the truck for an estimated $27,500. Traditionally, the company has used a general rule that it should not accept aproposal unless it has a payback period that is less than 50% of the asset's estimated useful life. Gary Smith, a new manager, hassuggested that the company should not rely only on the payback approach but should also use the net present value method whenevaluating new projects. The company's cost of capital is 8%.Calculate net present value and cash payback period
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $43,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year Machine A $ 123,000 19,000 Machine B $136,000 15,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine B. Note:…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS