Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $10,000 to install themachine and Builtrite will need to keep an extra $9,000 in inventory on hand due to the machine's efficiency. The currentmachine being used is 5 years old and originally cost $60,000 and is being depreciated down to zero over a 10-year period. Ifthe current machine were sold today, it could be sold for $45,000. In five years, the new machine is estimated to have asalvage value of $36,000. Two employees will need to be trained for the new machine at a cost of $4000. The new machine isexpected to produce $80,000 in annual savings. Builtrite is in the 34% tax bracket.What is the terminal cash flow for the new machine?O $23.760O $31,800O $32,760

Terminal cash flow is the cash flow available when equipment is used and sold at the end of project…

Answered: Builtrite is considering the purchase…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total,…
Kendra Company is considering replacing an old machine. The old machine was purchased for $100,700 and has a book value of $40,700 and should last four more years with no salvage value. The company believes that it could currently sell the old machine for $20,700. The new machine cost $80,700 and will have a 4-year life and a $10,700 salvage value. Currently, it costs $20,700 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, should Kendra Company replace the old machine?
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