Janko Wellspring Incorporated has a pump with a book value of $28,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $49,000. Janko can receive $8,400 for trading in the old pump. The old machine has variable manufacturing costs of $29,000 per year. The new pump will reduce variable costs by $11,300 per year over its four-year life. Should the pump be replaced? Multiple Choice O No, because the company will be $4,600 worse off in total. Yes, because income will increase by $4,600 per year.

Janko Wellspring Incorporated has a pump with a book value of $28,000 and a four-year remaining life. A new, more efficient pump is available at a cost of $49,000. Janko can receive $8,400 for trading in the old pump. The old machine has variable manufacturing costs of $29,000 per year. The new pump will reduce variable costs by $11,300 per year over its four-year life. Should the pump be replaced? Multiple Choice O No, because the company will be $4,600 worse off in total. Yes, because income will increase by $4,600 per year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 13P

See similar textbooks

Related questions

Q: Pappy's Potato has come up with a new product, the Potato Pet (they are freeze-dried to last…

A: Please find the answer to the above questions below:

Q: The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The…

A: Step 1: Calculate the Net IncomeNet income = Revenue less Operating Expenses less TaxesRevenue…

Q: Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a…

A: Variable costs is costs that varies with the number of units produced or sold.Differential analysis…

Q: The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The…

A: NPV net present value refers to the capital budgeting techniques used to evaluate the profitability…

Q: Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying…

A: In the computation of NPV of such proposal, we should consider the annual cash flow post tax and…

Q: The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for…

A: Depreciation means reduction in value of asset over the useful life.Annual depreciation = (Cost of…

Q: Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards…

A: Initial cost = $125,000 Increase in labor cost = $1,500 Decrease in material cost = $10,000 Net…

Q: Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance…

A: Net present value is the capital budgeting technique used to evaluate various investment…

Q: Beryl's Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance…

A: Net Present Value is used to evaluate the investment and financing decisions that involve cash flows…

Q: Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a…

A: Old machine:Book value = $46,000Useful life = 5 yearsSales value = $56,000Variable manufacturing…

Q: Janko Wellspring Incorporated has a pump with a book value of $26,000 and a four-year remaining…

A: The objective of the question is to determine whether Janko Wellspring Incorporated should replace…

Q: The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The…

A: To calculate the Net Present Value (NPV) of the project, we need to follow several steps:1.…

Q: Vandalay industries is considering the purchase of a new machine for the production of latex.…

A: Equivalent annual cost (EAC) is used to compare two assets which have different life spans. It…

Question

100%

Janko Wellspring Incorporated has a pump with a book value of $28,000 and a four-year remaining life. A new, more
efficient pump is available at a cost of $49,000. Janko can receive $8,400 for trading in the old pump. The old machine
has variable manufacturing costs of $29,000 per year. The new pump will reduce variable costs by $11,300 per year over
its four-year life. Should the pump be replaced?
Multiple Choice
No, because the company will be $4,600 worse off in total.
Yes, because income will increase by $4,600 per year.
No lankn will record a loss of $16,800 if they replace the pump.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

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

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
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
Rocko Incorporated has a machine with a book value of $50,000 and a five-year remaining life. A new machine Is available at a cost of 585.000 and Rocko ca for trading in the old machine. The old machine has varlable manufacturing costs of $24,0o00 per year. The new machine will reduce variable manutacturing over its five-year life. Should the machine be replaced? Multiple Choice Rocko will be not be better or worse off by replacing the machine. Yes, because income will increase by $14,000 per year. Yes, because income will increase by $23,000 in total. No, because the income will decrease by $14,000 per year. No, because the company will be $23,000 worse off in total.
Falk Inc. has a machine with a book value of $50,000 and a five-year remaining life. A new machine is available at a cost of $85,000 and Falk can also receive $38,000 for trading in the old machine. The new machine will reduce variable manufacturing costs by $14,000 per year over its five-year life. Should the machine be replaced? no, because the income will decrease by $27,000 per year yes, because income will increase by $23,000 in total yes, because income will increase by $14,000 per year no, because the company will be $23,000 worse off in total
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $48,000 and a remaining useful life of four years. It can be sold now for $58,000. Variable manufacturing costs are $46,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Machine B Purchase price $ 116,000 $ 128,000 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? (c) Should Lopez keep or replace its old machine?(d) If the machine should be replaced, which new machine should Lopez purchase? Compute the income increase or…
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $50,000 and a remaining useful life of four years. It can be sold now for $60,000. 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 four years. Machine A Machine B Purchase Price $116,000 $130,000 Variable manufacturing costs per year 20,000 14,000 (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? *please correct my answers
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 four years. It can be sold now for $59,000. Variable manufacturing costs are $43,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Machine A Machine B Purchase price $ 121,000 $ 135,000 Variable manufacturing costs per year 19,000 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?
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?