Crane Inc. wants to purchase a new machine for $40,700, excluding $1,500 of installation costs. The old machine was purchased 5years ago and had an expected economic life of 10 years with no salvage value. The old machine has a book value of $2,300, and CraneInc. expects to sell it for that amount. The new machine will decrease operating costs by $9,700 each year of its economic life. Thestraight-line depreciation method will be used for the new machine for a 6-year period with no salvage value.Click here to view the factor table.(a)Determine the cash payback period. (Round cash payback period to 2 decimal places, e.g. 10.53.)Cash payback period(b)Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 13%. For calculation purposes, use 5 decimalplaces as displayed in the factor table provided.)Internal rate of return(c)yearsThe investmentAssuming the company has a required rate of return of 10%, determine whether the new machine should be purchased.be accepted.%

The objective of the question is to evaluate the financial feasibility of purchasing a new machine…

Answered: Crane Inc. wants to purchase a new…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A machine purchased three years ago for $318,000 has a current book value using straight-line depreciation of $192,000; its operating expenses are $39,000 per year. A replacement machine would cost $227,000, have a useful life of nine years, and would require $10,000 per year in operating expenses. It has an expected salvage value of $71,000 after nine years. The current disposal value of the old machine is $81,000; if it is kept 9 more years, its residual value would be $18,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Keep Old Machine Total costs Should the old machine be replaced? Purchase New Machine
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