kRory Company has an old machine with a book value of $77,000 and a remaining five-year useful life. Rory is considering purchasing anew machine at a price of $106,000. Rory can sell its old machine now for $73,000. The old machine has variable manufacturing costsof $32,000 per year. The new machine will reduce variable manufacturing costs by $12,800 per year over its five-year useful life.(a) Prepare a keep or replace analysis of income effects for the machines.(b) Should the old machine be replaced?Complete this question by entering your answers in the tabs below.Required ARequired BPrepare a keep or replace analysis of income effects for the machines.cesKeep or Replace AnalysisKeepRevenuesSale of existing machine$0CostsPurchase of new machineVariable manufacturing costsIncome (loss)ReplaceIncome Increase(Decrease) if replaced

Incremental Analysis :— This analysis shows the comparison between two different alternatives.…

Answered: k Rory Company has an old machine with…

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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Consider a machine that costs $1000 to purchase. The machine creates an annual operating expense of $500 at the end of first year, which is going to increase by $50 in each year thereafter. The salvage value of this machine is $200, independent of the usage period. Find the economic life of this machine under nominal MARR 25%, compounding annually. A 8. B. 6.
You are considering adding a new item to your company’s line of products. The machine required to manufacture the item costs $200000, and it depreciates straight-line over 4 years. The new item would require a $30000 increase in inventory and a $15000 increase in accounts payable. You plan to market the items for four years and then sell the machine for $40000. You expect to sell 2000 items per year at a price of $300. You expect manufacturing costs to be $220 per item and the fixed cost to be $3,000 per year. If the tax rate is 30% and your weighted average cost of capital is 12% per year, what is the net present value of selling the new item? ) $159,744 2) $73,903 3) $191,692 4) -$159,744 5) -$191,692
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Consider a machine purchased one year ago for $18,000. The machine is being depreciated $3,000 per year throughout a six-year period. Its current market value is $6,000, and the expected market value of the machine one year from now is $4,000. If the interest rate is 10%, the expected cost of holding the machine during the next year is $___.
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 $43,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year Machine A $ 123,000 19,000 Machine B $136,000 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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine B. Note:…
Problem 1: You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $80 initially, and then $125 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $100 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 12 percent, and the tax rate is zero.
A company is considering expanding their production capabilities with a new machine that costs $50,000 and has a projected lifespan of 6 years. They estimate the increased production will provide a constant $9,000 per year of additional income. Money can earn 1.3% per year, compounded continuously. Should the company buy the machine? ]
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2. Super Apparel wants to replace an old machine with a new one. The new machine would increase annual revenue by $200,000 and annual operating expenses by $80,000. The new machine would cost $400,000. The estimated useful life of the machine is 10 years with zero salvage value. i. Compute Accounting Rate of Return (ARR) of the machine using above information. ii. Should Super Apparel purchase the machine if management wants an Accounting Rate of Return of 19% on all capital investments? Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.
FULL QUESTION: Kinky Copies may buy a high-volume copier. The machine costs $100,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine actually can be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm’s marginal tax rate is 21%, and the discount rate is 8%. (Assume the net working capital will be recovered at the end of Year 5.) What is the NPV of this project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
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