Lincoln Manufacturing is considering starting a new line of business with the excess capacity it currently has on its production line. Thecurrent line is expected to last five years at the current rate of production. However, if a new line of business is taken on, then theproduction line will have to be replaced in three years instead of five. The new production line will last six years and would cost$100,000. What is the cost of taking on the new line of business? Round to the nearest dollar and assume a 7 percent cost of capital.$16,006$33,132$17,126$20,980

Given: Particulars Amount New machine cost $100,000 Interest rate 7% Years 6 Replaced in…

Answered: Lincoln Manufacturing is considering…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider equipment for the expansion of a production line that will cost $600,000 up front (i.e., today, t = 0). The production line will be depreciated using a 3-year straight-line schedule. At the end of Year 3, the used equipment will have no value. The new line will generate earnings according to the schedule below. What is the Average Accounting Return (AAR) of the new production facility? Answer with a number rounded to three decimal places, e.g., 4.0877% should be entered as 4.088. Year 01 Earnings = $24,500 Year 02 Earnings = $26,000 Year 03 Earnings = $27,250
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