Munoz Freight Company owns a truck that cost $47,000. Currently, the truck's book value is $ 22,000, and its expected remaining useful life is four years. Munoz has the opportunity to purchase for $29,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,500 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for
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- Esteez Construction Company has an overhead crane that has an estimated remaining life of 7 years. The crane can be sold for $14,000. If the crane is kept in service it must be overhauled immediately at a cost of $6,000.Operating and maintenance costs will be $5,000/year after the crane is overhauled. After overhauling it, the crane will have a zero salvage value at the end of the 7-year period. A new crane will cost $36,000, will last for 7 years, and will have an $8,000 salvage value at that time. Operating and maintenance costs are $2,500 for the new crane. Esteez uses an interest rate of 15% in evaluating investment alternatives. Should the company buy the new crane based upon an annual cost analysis? Solve, a. Use the cash flow approach. b. Use the opportunity cost approach.Fisher Ferry Company operates a high speed passenger ferry service across the Mississippi River. One of its ferryboats is in poor condition. This ferry can be renovated at an immediate cost of $ 200,000. Further repairs and an overhaul of the motor will be needed five years from now at a cost of $ 100,000. In all, the ferry will be usable for 10 years if this work is done. At the end of 10 years, the ferry will have to be scrapped at a value of $ 60,000. The scrap value of the ferry right now is $ 70,000. It will cost $ 300,000 yearly to operate the ferry, and revenues will total $ 400,000 annually. As an alternative, Fisher Ferry Company can purchase a new ferryboat at a cost of $ 720,000. If the company decides to purchase the new one, the old one will be sold right away. The new ferry will have a life of 10 years, but it will require some repairs costing $ 30,000 at the end of five years. At the end of 10 years, the ferry will have a scrap value of $ 60,000. It will cost $ 210,000…Roadrunner Freight Company owns a truck that cost $42,000. Currently, the truck’s book value is $24,000, and its expected remaining useful life is four years. Roadrunner has the opportunity to purchase for $31,200 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $6,000 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $14,400.RequiredCalculate the total relevant costs. Should Roadrunner replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?
- DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life. If DeYoung doesn't replace the old machine, it will have no salvage value at the end of its useful life. The new machine has a purchase price of $775,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total,…The Darlington Equipment Company purchased a machine 5 years ago at a cost of $85,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,500 per year. If the machine is not replaced, it can be sold for $5,000 at the end of its useful life. A new machine can be purchased for $170,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. The new machine is eligible for 100% bonus depreciation at the time of purchase. The old machine can be sold today for $50,000. The firm's tax rate is 25%. The appropriate WACC is 9%. If the new machine is purchased, what is the amount of the initial cash flow at Year 0 after bonus depreciation is considered? Cash outflow should be indicated by a minus sign. Round your answer to the nearest dollar.$…Benson Freight Company owns a truck that cost $47,000. Currently, the truck’s book value is $22,000, and its expected remaining useful life is five years. Benson has the opportunity to purchase for $30,300 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to be $7,000 per year more than fuel cost for the new truck. The old truck is paid for but, in spite of being in good condition, can be sold for only $19,000.RequiredCalculate the total relevant costs. Should Benson replace the old truck with the new fuel-efficient model, or should it continue to use the old truck until it wears out?
- A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. The old machine can be sold today for $50,000. The firm's tax rate is 35%, and the appropriate cost of capital is 14%. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest whole dollar.$ What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest whole dollar. CF1 $ CF2 $…National Chemicals has an automatic chemical mixer that it has been using for the past 4 years. The mixer originally cost $18,000. Today the mixer can be sold for $10,000. The mixer can be used for 10 years more and will have a $2,500 salvage value at that time. The annual operating and maintenance costs for the mixer equal $6,000/year. Because of an increase in business, a new mixer must be purchased. If the old mixer is retained, a new mixer will be purchased at a cost of $25,000 and have a $4,000 salvage value in 10 years. This new mixer will have annual operating and maintenance costs equal to $5,000/year. The old mixer can be sold and a new mixer of larger capacity purchased for $32,000. This mixer will have a $6,000 salvage value in 10 years and will have annual operating and maintenance costs equal to $8,000/year. Based on a MARR of 15% and using an EUAC cash flow approach, what do you recommend?XYZ Manufacturing Corporation currently has production equipment that has 4 years ofremaining life. The equipment was purchased a year ago at a cost of $10,000. The annual depreciation for this machine is $1,800 and its expected salvage value is $1,000. The equipment can be sold today for $8,000. The company has been considering the purchase of a new machine that will replace the existing one. The new equipment costs $15,000 and would increase sales (through increased production) by $2,000 per year and decrease operating costs by $1,000 per year. The equipment will be worthless after 4 years. The applicable depreciation rates are 0.33, 0.45, 0.15, and 0.07. The company's tax rate is 40 percent and its cost of capital is 12 percent. What is the Net Investment (NINV)
- SagarPharoah Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $56,800. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,000. At the end of 8 years, the company will sell the truck for an estimated $27,500. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset's estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company's cost of capital is 8%. Click here to view PV table. (a) Compute the cash payback period and net present value of the proposed investment. (If the net present value is…Sunland Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $122,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $40,100. The new equipment can be bought for $175,880, including installation. Over its 10-year life, it will reduce operating expenses from $193,900 to $145,000 for the first six years, and from $204,800 to $191,300 for the last four years. Net working capital requirements will also increase by $20,700 at the time of replacement. It is estimated that the company can sell the new equipment for $24,900 at the end of its life. Since the new equipment's cash flows are relatively certain, the project's cost of capital is set at 9 %, compared with 15% for an average - risk project. The firm's maximum acceptable payback period is 5…
