Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $603,000 and has $352,400 of accumulated depreciation to date, with a new machine that has a purchase price of $484,200. The old machine could be sold for $64,300. The annual variable production costs associated with the old machine are estimated to be $158,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,800 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Feedback Continue with Old Replace Old Machine Machine (Alternative 1) (Alternative 2). 0000 Differential Effects (Alternative 2) 1000 0

Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $603,000 and has $352,400 of accumulated depreciation to date, with a new machine that has a purchase price of $484,200. The old machine could be sold for $64,300. The annual variable production costs associated with the old machine are estimated to be $158,600 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,800 per year for 8 years. a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) Feedback Continue with Old Replace Old Machine Machine (Alternative 1) (Alternative 2). 0000 Differential Effects (Alternative 2) 1000 0

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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Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $601,100 and has $350,100 of accumulated depreciation to date, with a new machine that has a purchase price of $485,500. The old machine could be sold for $62,100. The annual variable production costs associated with the old machine are estimated to be $155,900 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,300 per year for eight years. a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) September 13 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on…
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Differential Analysis for Machine Replacement Proposal Franklin Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, ten-year life $110,000 Annual depreciation (straight-line) 11,000 Annual manufacturing costs, excluding depreciation 39,100 Annual nonmanufacturing operating expenses 11,300 Annual revenue 94,600 Current estimated selling price of the machine 35,900 New Machine Cost of machine, six-year life $138,000 Annual depreciation (straight-line) 23,000 Estimated annual manufacturing costs, exclusive of depreciation 17,700 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of November 8 comparing…
Replace Equipment A machine with a book value of $251,700 has an estimated six-year life. A proposal is offered to sell the old machine for $214,200 and replace it with a new machine at a cost of $281,500. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $50,400 to $40,300. a. Prepare a differential analysis dated April 11 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 11 Continue Replace Differential with Old Old Effects Machine Machine (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine $ Costs: Purchase price Direct labor (6 years) Profit (Loss) b. Should the company continue with the old machine (Alternative 1) or replace the old machine…
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $231,000. The annual variable production costs associated with the old machine are estimated to be $61,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $19,000 per year for eight years. a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) September 13 Continue with Old Machine (Alternative 1) Replace Old Machine (Alternative 2) Differential Effect on Income (Alternative…
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Replacement Analysis 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 $104,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $18,900 per year. It would have zero salvage value at the end of its life. The project cost of capital is 9%, and its marginal tax rate is 25%. Should Chen buy the new machine? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. NPV: $ 1028.71 Chen should purchase the new machine.