Carla Vista Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on largehomes and commercial properties. Last year, Carla Vista Roofing spent $77,400 refurbishing the lift. It has just determined thatanother $45,500 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $194,000. The companyestimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expensesfrom $110,000 to $84,200 each year. Carla Vista Roofing could also rent out the new lift for about $11,500 per year. The old lift is notsuitable for rental. The old lift.could currently be sold for $28,500 if the new lift is purchased. The new lift and old lift are estimated tohave salvage values of zero if used for another 5 years.Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amountsusing either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Operating expenses $Repair costsRental revenueNew machine costSale of old machineTotal cost$RetainEquipmentReplaceEquipment110000$45500Should company repair or replace the equipment?$194000 i28500Net IncomeIncrease (Decrease)$$

Incremental analysis refers to the tool which is used for taking decisions for determining the cost…

Answered: Carla Vista Roofing is faced with a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Janko Wellspring Inc. has a pump with a book value of $24,000 and a four-year remaining life. A new, more efficient pump, is available at a cost of $45,000. Janko can also receive $8,000 for trading in the old pump. The new pump will reduce variable costs by $10,000 per year over its four-year life. The costs not relevant to the decision of whether or not to replace the pump are: Select one: O a. $40,000. O b. $8,000. O c. $10,000. O d. $24,000. O e. $16,000.
Sooky has a spotter truck with a book value of $46,000 and a remaining useful life of five years. At the end of the five years the spotter truck will have a zero-salvage value. iSooky can purchase a new spotter truck for $126,000 and receive $31,600 in return for trading in its old spotter truck. The old spotter truck has variable manufacturing costs of $81,000 per year. The new spotter truck will reduce variable manufacturing costs by $25,600 per year over the five-year life of the new spotter truck. The total increase or decrease in income by replacing the current spotter truck with the new truck is:
Pizza Palace has five brick ovens that need attention and is considering two options. Both options will cost around $1,000,000 (initial investment). Option 1 is to refurbish its current brick-ovens. If refurbished, Pizza Palace expects the ovens to last another 6 years. The average annual income from refurbishing the ovens is $183,333.33. Refurbishing the ovens will have no salvage value. Option 2 is to replace the current ovens. New ovens would last 8 years and have no salvage value. The average annual income from buying a new oven is $143,750. Pizza Palace expects the following net cash inflows from the two options: Year Refurbish Current Ovens Purchase New Ovens 1 $600,000 $800,000 2 $500,000 $600,000 3 $400,000 $300,000 4 $300,000 $200,000 5 $200,000 $100,000 6 $100,000 $50,000 7 $50,000 8 $50,000 Pizza Palace uses straight-line depreciation and requires an annual return of 10%
A8
Comfort Golf Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Stenback Inc. costs $900,000 and will last five years and have no residual value. The Stenback equipment will generate annual operating income of $153,000. Equipment manufactured by Littleton Limited costs $1,200,000 and will remain useful for six years. It promises annual operating income of $238,800, and its expected residual value is $110,000. Which equipment offers the higher ARR? First, enter the formula, then calculate the ARR (Accounting Rate of Return) for both pieces of equipment. (Enter the answer as a percent rounded to the nearest tenth percent.) Accounting rate of return
Cullumber Roofing is faced with a decision. The company relies very heavily on the use of its 60-foot extension lift for work on large homes and commercial properties. Last year, Cullumber Roofing spent $67,200 refurbishing the lift. It has just determined that another $31,000 of repair work is required. Alternatively, it has found a newer used lift that is for sale for $132,500. The company estimates that both lifts would have useful lives of 5 years. The new lift is more efficient and thus would reduce operating expenses from $93,000 to $70,600 each year. Cullumber Roofing could also rent out the new lift for about $8,000 per year. The old lift is not suitable for rental. The old lift could currently be sold for $19,500 if the new lift is purchased. The new lift and old lift are estimated to have salvage values of zero if used for another 5 years.Prepare an incremental analysis showing whether the company should repair or replace the equipment. (Enter negative amounts using either a…
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable?
Builtrite is considering the purchase of a new five-year machine worth $90,000. It will cost another $10,000 to install the machine and Builtrite will need to keep an extra $9,000 in inventory on hand due to the machine's efficiency. The current machine being used is 5 years old and originally cost $60,000 and is being depreciated down to zero over a 10-year period. If the current machine were sold today, it could be sold for $45,000. In five years, the new machine is estimated to have a salvage value of $36,000. Two employees will need to be trained for the new machine at a cost of $4000. The new machine is expected 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 $23.760 O $31,800 O $32,760
Meman
Sheridan Company has a factory machine with a book value of $150,000 and a remaining useful life of 4 years. A new machine is available at a cost of $245,000. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $590,000 to $490,000. Prepare an analysis that shows whether Sheridan should retain or replace the old machine. (If an amount reduces the net income then enter with a negative sign preceding the number or parenthesis, e.g. -15,000, (15,000).) Variable costs New machine cost $ $ Keep Equipment $ $ Replace Equipment $ $ Net Income Increase (Decrease) Activate Windo Go to Settings to ac
Roadrunner Freight Company owns a truck that cost $42,000. Currently, the truck’s book value is $24,000, and its expected remaining useful life is four years. Roadrunner has the opportunity to purchase for $31,200 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,000 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $14,400.RequiredCalculate the total relevant costs. Should Roadrunner replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?
DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The current machine has a book value of $600,000 and is being depreciated by $120,000 per year over its 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 $180,000. If DeYoung doesn't replace the current machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $825,000, 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, an annual savings of $185,000 will…

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