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 four years. It can be sold now for $56,000. Variable manufacturing costs are $50,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Purchase price Variable manufacturing costs per year Machine A $ 122,000 20,000 Machine B $ 135,000 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?

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 four years. It can be sold now for $56,000. Variable manufacturing costs are $50,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is four years. Purchase price Variable manufacturing costs per year Machine A $ 122,000 20,000 Machine B $ 135,000 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?

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

Two 100-horsepower motors are under consideration by the Mighty Machinery Company. Motor Q costs $5,000 and operates at 90% efficiency. Motor R costs $3,500 and is 88% efficient. Annual operating and maintenance costs are estimated to be 15% of the initial purchase price. Power costs 3.2¢/ kilowatt-hour. How many hours of full-load operation are necessary each year in order to justify the purchase of motor Q? Use a 15-year planning horizon; assume that salvage values will equal 20% of the initial purchase price; and let the MARR be 15%. (Note: 0.746 kilowatts = 1 horsepower.)
Emerson Electric manufactures compressors for air conditioners. It needs replacement equipment to improve one of its manufacturing lines. Select between two options using the MARR of 14% per year and a future worth analysis for the expected use period. What are the future values of each option? Option First cost, S A B -64,000-76,000 -16,000-22,000 AOC, $ per year Expected salvage value 8,000 11,000 Expected use, years 3 6
The annual operating costs of Machine A are $2,000. The machine will perform satisfactorily over the next five years and has an estimated market value (MV) of $3,000 at the end of its useful life. A salesperson for another company is offering a replacement, Machine B, for $14,000, with a MV of $1,400 after five years. Annual operating costs for Machine B will only be $1,500. It is believed that $10,000 could be obtained for the old machine A if it were sold now. If the before-tax MARR is 11% per year, determine whether the old machine A should be replaced by the new machine B.
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.
Beryl's Iced Tea currently rents a bottling machine for $54,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $155,000. This machine will require $24,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $19,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $35,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea continue…
Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $45,000 and a remaining useful life of four years, at which time its salvage value will be zero. It has a current market value of $55,000. Variable manufacturing costs are $33,100 per year for this machine. Information on two alternative replacement machines follows. Alternative A Alternative B Cost $ 124,000 $ 119,000 Variable manufacturing costs per year 22,000 10,800 Calculate the total change in net income if Alternative A, B is adopted. Should Xinhong keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xinhong purchase?
A company can rent a machine for an all- inclusive rate of $125 per hour and on average makes use of such a machine for 1600 hours per year. The company is considering purchasing a machine as an alternative to rent and obtains the information given below: Cost of machine = $320,000 Salvage value after 5 years = $120,000 Annual insurance premiums = $3,000 Annual tax = $1,80 Fuel cost per hour = $50 Oil and grease cost = 10% of fuel cost Annual maintenance = $15,000 Discount Rate = 18% If the planning horizon is 5 years, determine whether the company should purchase a new machine or continue to rent?
Rory Compeny has an old machine with a book value of $77,000 and a remaning tve year usetu e. Rory is comsidering purchasing new machine at a price of $103,000. Rory cen sel its old machine now for $82.000. The oid machine has variable manufacturing costs of $32.000 per yeaM. The new machine wili reduce varlable manufacturing costs by $12.800 per year over its five-year unetul e (a) Prepare a koep or roplace 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. Requred A Reaured Prepare a kerp or replace analysis of income effects for the machines income inuraase Keep er Haplase Anaysie Kin Raplate (Decres if relaced Revenues Sale of eting maihine Costs Puthase of new mahe Variate manutacuring costs Imcome oan)
A small business owner is considering the purchase of a new copier for the business. The purchase price is $7500 including set up and installation and has an expected life of 10 years. Monthly operating costs for paper and toner are expected to be $200/month while maintenance costs are $150 every 3 months. At the end of 10 years, the copier will have a resale value of $750. What are the life cycle costs of this copier to the business if the prevailing interest rate for the time period averages 5%?
Which option should xinhong choose
Company is considering purchasing a breadmaker. The cost of the breadmaker is $200,000 and an additional $10,000 is required for installation and training expenses. The old equipment can be sold for $4000. Annual cash flows are $6,285 It is estimated the breadmaker will operate for 25 years Annual costs are expected to consist of $2500 for maintenance, 8,200 for depreciation, and 4,000 for electricity. The rate of return is 6%. The companies corporate tax rate is 25% and the present value of the tax shield for the breadmaker is $28000 Given all of this information, what would be the NPV of the breadmaker and should the company purchase it?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $360,500 and will generate $100,000 per year for 5 years. Calculate the IRR for this piece of equipment. (Click here to see present value and future value tables) fill in the blank 1%