Answered: c. Clearly show the cash flow profile…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Transcribed Image Text:c. Clearly show the cash flow profile for each alternative using an opportunity cost approach (outsider's viewpoint approach). Provide cash flow for year t=0, 3 and 5. Machine NC &S Machine L t Cash flow Cash flow 285000 480000 1 2$ 2$ 2$ 3 87000 78000 4 2$ 2$ 16548 $ 79287 d. Using an EUAC comparison and an opportunity cost approach (outsider's viewpoint approach), decide which is the more favorable alternative. 1. EUAC of the combination of multi-axis NC machine and machine S 2$ 140688.60 2. EUAC of the machine L $ 222144.55 3. Favorable alternative: Machine NC &S %24 %24 %24 %24 LO

Transcribed Image Text:Your answer is partially correct. 5 years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complex parts used in commercial and military aircraft worldwide. It cost $350,000, had an estimated life of 15 years, and O&M costs of $50,000 per year. It was originally thought to have a salvage value of $20,000 at the end of 15 years but is now believed to have a remaining life of 5 years with no salvage value at that time. With business booming, the existing machine is no longer sufficient to meet production needs. It can be kept and supplemented by purchasing a new, smaller Machine S for $215,000 that will cost $37,000 per year for O&M, have a life of 10 years, and salvage value of $215,000(0.8*) after t years. As an alternative, a larger, faster, and more capable Machine L can be used alone to replace the current machine. It has cash price without trade-in of $480,000, O&M costs of $78,000 per year, salvage value of $480,000(0.8*) after t years, and a 15 year life. The present machine can be sold on open market for a maximum of $70,000, MARR is 15%, and the planning horizon is 5 years. a. Clearly show the cash flow profile for each alternative using a cash flow approach (insider's viewpoint approach). Provide cash flow for year t=D0, 3 and 5. Machine NC & S Machine L Cash flow Cash flow 215000 2$ 480000 1 87000 78000 2$ 87000 24 79287 3 87000 2$ 79287 4 2$ 87000 2$ 79287 $4 16548 2$ 79287 b. Using an EUAC and a cash flow approach (insider's viewpoint approach), decide which is the more favorable alternative. 1. EUAC of the combination of multi-axis NC machine and machine S 2$ -140688.60 2.EUAC of the machine L 2$ -222144.55 3.Favorable alternative: Machine NC &S %24 %24 %24 %24 2.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions