Delaney Company is considering replacing equipment that originally cost $543,000 and has accumulated depreciation of $380,100 to date. A new machine will cost $811,000. The sunk cost in this situation is

Delaney Company is considering replacing equipment that originally cost $543,000 and has accumulated depreciation of $380,100 to date. A new machine will cost $811,000. The sunk cost in this situation is

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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Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $276,000, has a four-year life, and requires $84,000 in pretax annual operating costs. System B costs $390,000, has a six-year life, and requires $78,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 24 percent and the discount rate is 8 percent. Calculate the EAC for both conveyor belt systems. Note: Your answers should be negative values and indicated by minus signs. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. System A System B Which conveyor belt system should the firm choose? System A System B
There is old machinery with a value of $95,565, with an expected life of 20 years. There is a sale of old equipment with a book value of $30,000 and a market value of $66,000.It is intended to replace that machine with a new one worth $145,000 with a useful life of 10 years. It will ultimately be sold at market value for $90,000, to generate salvage value.Old operating costs are $95,565 and new costs are $56,984. There is an initial working capital of $35,000, with movements of 15% of the initial working capital untilyear 6. From year 7 and 8 they are 20% of the initial working capital and in the ninth year 14% of the initial working capital.The WACC required for this project is 17% with a tax rate of 38.5%. The following table shows the depreciation of the new equipment.Depreciation1 20%2 15%3 15%4 10%5 10%6 10%7 7%8 5%9 5%10 3%Calculate your PV, NPV, IRR, TIRM, PAYBACK, IR and ROIPlease if you can send me the excel to: 0229275@up.edu.mxor tell me the steps to follow and if you can…
A chemical mixer was purchased 8 years ago for $100,000. If retained, it will require an investment of $50,000 to upgrade it; if upgraded, it will cost $35,000/year to operate and maintain (O&M) and will have a negligible salvage value after 5 years. A new mixer can be purchased for $120,000; it will have an annual O&M cost of $15,000 and a salvage value of $40,000 after 5 years. Alternatively, a mixer can be leased with 5 beginning-of-year lease payments of $20,000; O&M costs will be $18,000/year. If the mixer is replaced, the old mixer can be sold on the used equipment market for $15,000. Using an insider’s approach, what are (a) the EUAC of keeping the current mixer, (b) the EUAC of replacing with a new mixer, and (c) the EUAC of replacing with a leased mixer? The MARR is 10%.
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
H Corp is considering the replacement of some machinery that has zero book value and a current market value of P2,800. One possible alternative is to invest in new machinery that costs P30,000. The new equipment has a four-year service life and an estimated salvage of P3,500, will produce annual cash operating savings of P9,400, and will require a P2,200 overhaul in year 3. The company uses straight-line depreciation. The net-present-value of H's investment, assuming an 8% cost of capital (ignoring income taxes) will amount to
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Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor belt systems. System A costs $290,000; has a four-year life and requires $89,000 in pretax annual operating costs. System B costs $ 410,000; has a six-year life and required requires $79,00 in pretax operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever system is chosen, it will not be replaced when it wears out. If the tax rate is 34 percent and the discount rate is 7.5 percent, which system should the firm choose?
Maxwell Manufacturing is contemplating the purchase of a new machine to replace a machine that has been in use for seven years. The old machine has a net book value (NBV) of $51,000 and still has five years of useful life remaining. The old machine has a current market value of $5,100, but is expected to have no market value after five years. The variable operating costs and depreciation expenses (straight-line basis) are $120,000 per year. The new machine will cost $86,000, has an estimated useful life of five years with zero disposal value after five years, and an annual operating expense of $101,000 (including straight-line depreciation). Considering the five years in total and ignoring the time value of money and income taxes, what is the difference in total relevant costs for the two decision alternatives (keep vs. replace)?
A utility company is considering adding a second feedwater heater to its existing system unit to increase the efficiency of the system and thereby reduce fuel costs. The 150-MW unit will cost $1,650,000 and has a service life of 25 years. The expected salvage value of the unit is considered negligible. With the second unit installed, the efficiency of the system will improve from 55% to 56%. The fuel cost to run the feedwater is estimated at $0.05 kWh. The system unit will have a load factor of 85%, meaning that the system will run 85% of the year. Determine the equivalent annual worth of adding the second unit with an interest rate of 12%. Oa) $1,603,098 b) $12,573,321 Oc) $1,813,473 d) None of these
A conveyor system was purchased three years ago for $60,000 with an expected useful life of 10 years and no expected salvage value. Due to a change in product configuration, the conveyor system must be upgraded at a cost of $20,000. Maintenance on this system is approximately $4000 per year and the current system has a market value of $2000. Alternatively, the current system can be replaced with new equipment costing $65,000, with operating costs of $1,000 per year and an expected salvage of $10,000 after 7 years. Determine whether the company should keep or replace the defender now at an MARR of 15% per year. The current system is the Defender and the new system is the Challenger. What is the annual worth of the challenger?
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretax annual operating costs. System B costs $430,000, has a 6-year life, and requires $135,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? ○ System B O System A