Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. In the table below, prepare an analysis showing whether the old machine should be retained or replaced. NET 4-YEAR REPLACE EQUIPMENT RETAIN INCOME EQUIPMENT INCREASE / (DECREASE) Variable manufacturing costs for 4 years: New machine cost Sale proceeds from old machine. Total What should be the decision of the company? Why? Justify your answer.

Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. In the table below, prepare an analysis showing whether the old machine should be retained or replaced. NET 4-YEAR REPLACE EQUIPMENT RETAIN INCOME EQUIPMENT INCREASE / (DECREASE) Variable manufacturing costs for 4 years: New machine cost Sale proceeds from old machine. Total What should be the decision of the company? Why? Justify your answer.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

You are evaluating two different silicon wafer milling machines. The Techron I costs $267,000, has a three-year life, and has pretax operating costs of $72,000 per year. The Techron II costs $465,000, has a five-year life, and has pretax operating costs of $45,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $49,000. If your tax rate is 23 percent and your discount rate is 13 percent, compute the EAC for both machines
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a three - year life, and has pretax operating costs of $73, 000 per year. The Techron II costs $470,000, has a five-year life, and has pretax operating costs of $46, 000 per year. For both milling machines, use straight - line depreciation to zero over the project's life and assume a salvage value of $50,000. If your tax rate is 25 percent and your discount rate is 9 percent, compute the EAC for both machines.
A bhaliya
Vikarmbhai
The CFO of The Fun Factory is investigating the possibility of investing in a three-dimensional printer that would cost $16,500. The printer would eliminate the need to have prototypes of new toys be produced by a third party. The cost of having the prototypes manufactured by the third party is about $7,161 per year. The printer would have a useful life of five years with no salvage value with expected annual operating costs of $3,300 per year. Required: Compute the simple rate of return on the printer. (Round your answer to 1 decimal place.) Simple rate of return %
You are evaluating two different silicon wafer milling machines. The Techron I costs $252,000, has a three-year life, and has pretax operating costs of $67,000 per year. The Techron Il costs $440,000, has a five-year life, and has pretax operating costs of $40,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $44,000. If your tax rate is 24 percent and your discount rate is 9 percent, compute the EAC for both machines. Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Techron I Techron II $ -304,725.75 Which machine should you choose? O Techron I O Techron II
Blossom Company has a factory machine with a book value of $85,000 and a remaining useful life of 5 years. It can be sold for $25,000. A new machine is available at a cost of $345,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $550,000 to $450,000. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Equipment Variable manufacturing costs $ Replace Equipment $ Net Income Increase (Decrease) New machine cost Sell old machine Total $ The old factory machine should be tA $ $
You are evaluating two different silicon wafer milling machines. The Techron I costs $216,000, has a three - year life, and has pretax operating costs of $55, 000 per year. The Techron II costs $380,000, has a five-year life, and has pretax operating costs of $28, 000 per year. For both milling machines, use straight - line depreciation to zero over the project's life and assume a salvage value of $32, 000. If your tax rate is 23 percent and your discount rate is 10 percent, compute the EAC for both machines. Note: Your answer should be a negative value and indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
A small company that manufactures vibration isolation platforms is trying to decide whether it should immediately upgrade the current assemblysystem D, which is rather labor-intensive, with the more highly automated system C one year from now. Some components of the current system canbe sold now for $9000, but they will be worthless hereafter. The operating cost of the existing system is $192,000 per year. System C will cost $320,000 with a $50,000 salvage value after four years. Its operating cost will be $68,000 per year. If you are told to do a replacement analysis using an interest rate of 10% per year, which system do you recommend?
Smithson Mechanical Ltd. is considering replacing an existing hoist with a newer, more efficient piece of equipment. The existing hoist has a remaining useful life of 5 years. The new hoist costs CAD 46,000 to purchase and install and alsohas an estimated life of 5 years. It is a Class 5 asset with a CCA rate of 10.0% The company currently produces 8,500 units per year. The new hoist is expected to reduce variable costs by CAD 1.30 per unit and fixed costs by CAD 3,500 year. An increased investment in new working capital of CAD 4,500 will also be required to support the new machine. The existing hoist can currently be sold for CAD 15,000. At the end of 5 years, the existing hoist will have a salvage value of CAD 2,000. The new hoist can be sold for CAD 11,000 at the end of the 5-year period. The project’s RRR is 7.0% and its tax rate is 25.0%. The present value of the net initial cash flows of this project today is closest to: a) CAD -31,090. b) CAD -35,500. c) CAD -43,957. Net…
You are evaluating two different silicon wafer milling machines. The Techron I costs $303,000, has a 3-year life, and has pretax operating costs of $84,000 per year. The Techron Il costs $525,000, has a 5-year life, and has pretax operating costs of $57,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $61,000. If your tax rate is 25 percent and your discount rate is 13 percent, compute the EAC for both machines. (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.) Techron I Techron II Which machine do you prefer? Techron I Techron II
Need Help with