AccountingOn January 1, 2021, X Company bought a machine for $44,000. It's now January 1, 2022, andmanagement is disappointed that 2021 operating costs with the machine were $34,000. Since theyare expecting future operating costs to continue to be $34,000 a year, they are consideringreplacing the machine with a new one. Although the new machine will cost $48,000, operatingcosts with the new machine will decrease by $9,000 each year. Both machines will last for 6 moreyears. The current machine can be sold immediately for $9,000 but will have no salvage value atthe end of 6 years. The new machine will have a salvage value of $5,000 at the end of 6 years.Assuming a discount rate of 5%, what is the net present value of replacing the current machinewith the new one?

Replacement Decision In the Decision making using technique time value of money for capital…

Answered: On January 1, 2021, X Company bought a…

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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The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $8,000,000, and it will cost an additional $475,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 35 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.65, and total fixed costs will be $525,000 per year. After six years, the ride will be dismantled at a cost of $245,000 and the parts will be sold for $600,000. The cost of capital is 8.5%, and its marginal tax rate is 25%. Using Goal Seek, calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.
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