D00 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 canve $32,70o0 in return for trading in its old spotter truck. The old spotter truck has varlable manufacturing costs of $92,000 per year.ing costs by $26,700 per year over the five-year life of the new spotter truck. The total Increase or decrease in Income by Sooky has a spotter truck with a book value of $57,000 and a remaining useful Ilfe of five years. At the end of the five years the spottepurchase a new spotter truck for $137,000 and receive $32,700 in return for tradlng in Its old spotter truck. The old spotter truck hasThe new spotter truck will reduce varlable manufacturing costs by $26,700 per year over the five-year Iife of the new spotter truck.replacing the current spotter truck with the new truck is:Multiple Cholce$29,200 decrease$29,200 increase$32,700 increase$137,000 decrease$32,700 decrease

The purchase of new non cash assets in exchange of old asset, can lead to increase revenue for the…

Do and a remaining useful Iife of five years. At the end of the five years the spotter truck will have a zero-salvage value. ISooky can e $32,70O In return for trading in its old spotter truck. The old spotter truck has varlable manufacturing costs of $92,000 per year ng costs by $26,700 per year over the five-year life of the new spotter truck. The total Increase or decrease In lncome by

Do and a remaining useful Iife of five years. At the end of the five years the spotter truck will have a zero-salvage value. ISooky can e $32,70O In return for trading in its old spotter truck. The old spotter truck has varlable manufacturing costs of $92,000 per year ng costs by $26,700 per year over the five-year life of the new spotter truck. The total Increase or decrease In lncome by

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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Engineering Economics: Clin Corporation has an overhead crane that has an estimated remaining life of 10 years. The crane can be sold now for ₱800,000. If the crane is kept in service, it must be overhauled immediately at the cost of ₱400,000. Operating and maintenance costs will ₱300,000 per year after the crane is overhauled. The overhauled crane will have zero market value at the end of the 10-year study period. A new crane will cost ₱1.8M and can last for 10 years with a market value of ₱400,000 at that time. Operating and maintenance costs are ₱100,000 per year for the new crane. The company uses an after-tax interest rate of 10% per year in evaluating investment alternatives. Should the company replace the old crane?
B2B Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $360,000 with a 12-year life and no salvage value. It will be depreciated on a straight-line basis. The company expects to sell 144,000 units of the equipment’s product each year. The expected annual income related to this equipment follows. Compute the (1) payback period and (2) accounting rate of return for this equipment. Check (1) 5.39 years, (2) 20.42% Sales . $225,000 Costs Materials, labor, and overhead (except depreciation on new equipment) . 120,000 Depreciation on new equipment 30,000 Selling and administrative expenses 22,500 Total costs and expenses 172,500 Pretax income 52,500 Income taxes (30%) . 15,750 Net income . $ 36,750
A delivery car had a first cost of $30,000, an annual operating cost of $12,000, and an estimated $4000 salvage value after its 6-year life. Due to an economic slowdown, the car will be retained for only 2 years and must be sold now as a used vehicle. (a) At an interest rate of 10% per year, what must the market value of the 2-year-old vehicle be in order for its AW value to be the same as the AW for a full 6-year life cycle? (b) Compare your answer in (a) with the first cost and expected salvage after 6 years. Is the required market value a reasonable one, in your opinion?
XYZ Company has an opportunity to purchase and asset that will cost the company $60,000. The asset is expected to add $12,000 per year to the company’s net income. Assuming the asset has a 5-year useful life and a zero salvage value, the unadjusted rate of return will be?
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $46,000 and a remaining useful life of five years. It can be sold now for $56,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Machine A Machine B Purchase price $ 116,000 $ 129,000 Variable manufacturing costs per year 21,000 13,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?
The AW values for retaining a presently owned machine for additional years are shown in the table. Note that the values represent the AW amount for each of the n years that the asset is kept, i.e., if it is kept 5 more years, the annual worth is $−95,000 for each of the 5 years. Assume that future costs remain as estimated for the replacement study and that used machines like the one presently owned will always be available. (a) What is the ESL and associated AW of the defender at a MARR of 12% per year? (b) A challenger with an ESL of 7 years and an AWC = $-88,000 per year has been identified. Which AW will be less for the respective ESL periods? Retention Period, Years AW Value, $ per Year 1 -87,000 2 -93,000 3 -85,000 4 -83,000 5 -95,000 a) The ESL of the defender is_____ year(s) with the lowest AW of $_________ . b) The______________ has the lower AW at _________$ for n equal to ______ .
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Janko Wellspring Incorporated has a pump with a book value of $26,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $47,000. Janko can receive $8,200 for trading in the old pump. The old machine has variable manufacturing costs of $27,000 per year. The new pump will reduce variable costs by $11,100 per year over its four-year life. Should the pump be replaced? Multiple Choice No, because the company will be $5,600 worse off in total. Yes, because income will increase by $5.500 per year No, because income wit decrease by $100 per year. Yes, because income will increase by $5.600 in total No, Janko will record a loss of $16,400 r they replace the pump
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of five years. It can be sold now for $59,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Machine A Machine B Purchase price $ 122,000 $ 136,000 Variable manufacturing costs per year 18,000 15,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?
Machine A costs $1,520,000 to buy and install and costs $48,000 per year to operate. The machine has a five-year useful life and zero salvage value. The required return is 15.5%. What is the equivalent annual cost of Machine A? (Answer: $506,819)
Winthrop Company has an opportunity to manufacture and sell a new product for a five-year period. To pursue this opportunity, the company would need to purchase a plece of equipment for $130,000. The equipment would have a useful life of five years and a $10,000 salvage value. The CCA rate for the equipment is 30%. After careful study. Winthrop estimated the following annual costs and revenues for the new product: Sales revenues: Variable expenses Fixed expenses $250,000 $130,000 $ 70,000 The company's tax rate is 30% and its after-tax cost of capital is 10%. Required: 1. Compute the net present value of the project. (Hint Use Microsoft Excel to calculate the discount factor(s).) (Do not round intermediate calculations and PV factor. Round the final answers to the nearest whole dollar. Negative value should be indicated with minus sign.) 2. Would you recommend that the project be undertaken? 1. Net present value 2 Would you recommend that the project be undertaken?
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