Internal Company is considering the replacement of a machine that ispresently used in production. The following data are available. Adding all fiveyears together, what is the difference in total relevant costs between the old7machine and the new machineOld Machine$57,0001712$39,000$8,0000.New Machine$35,000Original costUseful life in yearsCurrent age in yearsBook valueDisposal value nowDisposal value in 5 yearsAnnual cash operating costs0.$7,000$4,000$12,000 O$37,000 O$22,000S15,000$55,000

Relevant costs are the future costs that change and are affected by the management's decision. It is…

Old Machine $57,000 New Machine $35,000 Original cost Useful life in years Current age in years Book value 17 12 $39,000 $8,000 Disposal value now Disposal value in 5 years Annual cash operating costs $7,000 $4,000

Old Machine $57,000 New Machine $35,000 Original cost Useful life in years Current age in years Book value 17 12 $39,000 $8,000 Disposal value now Disposal value in 5 years Annual cash operating costs $7,000 $4,000

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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New factory = $10,000,000 Tear down Old factory which cost to build = $2,000,000 Instead of building new factory, can sell the land for = $500,000 New factory has a life of 5 Years but the project is 4 years so depreciate straight line over 5 years Salvage Value at the end of 4 years = $1,000,000 Revenue= $5,000,000 per year Variable Costs = $1,000,000 per year Fixed Costs excluding depreciation = $500,000 WACC=10% Tax Rate = 30% WHAT’S THE NPV OF THIS PROJECT
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Input area: Installation cost Pretax salvage value Operating cost per year Initial NWC Tax rate Discount rate *Depreciation straight-line over life Output area: Annual depreciation charge Aftertax salvage value OCF NPV $ SA SA SA GA $ 385,000 $ 60,000 $ 135,000 35,000 21% 10% ᏌᏊ Ꮚ Ꮚ $ 77,000 $ 47,400 $ 122,820 5
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