Reacher Corporation is evaluating a proposal to purchase a new machine that wouldcost $100,000 and would have a salvage value of $12,000 in 4 years. It wouldprovide annual savings of $10,000 as noted below.Direct materialsDirect labourShare of allocated overheadOld Machine$40,000New Machine$36,0007,0005,0009,0005,000$56,000$46,000Total CostsIf the new machine is purchased, the old machine will be sold for its current salvagevalue of $20,000 whereas if the new machine is not purchased, the old machine willbe disposed of in 4 years at a predicted salvage value of $2,000.The old machine has a present book value of $40,000. If kept, in one year the oldmachine will require estimated repairs of $25,000. The firms cost of capital is 10%.Present value factors at 10% are provided below.Year PV of $1 PV of Annuity of $11 0.9090.90920.8261.73630.7512.4870.6833.170Required: Showing all relevant calculations in good presentation form, should themachine be purchased. Why or why not?

To further understand the decision-making process, let's go over the computations in more detail.…

Answered: Reacher Corporation is evaluating a…

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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Englewood Company has an opportunity to produce and sell a revolutionary new smoke detector for homes. To determine whether this would be a profitable venture, the company has gathered the following data on probable costs and market potential: a. New equipment would have to be acquired to produce the smoke detector. The equipment would cost $100,000 and be useable for 12 years. After 12 years, it would have a salvage value equal to 10% of the original cost. b. Production and sales of the smoke detector would require a working capital investment of $ 40,000 to finance accounts receivable, inventories, and day-to-day cash needs. This working capital would be released for use elsewhere after 12 years. c. An extensive marketing study projects sales in units over the next 12 years as follows: Year Sales in Units 1... 7,000 3..... ... 10,000 4 -12.. ..... 4,000 2.... d. The smoke detectors would sell for $45 each; variable costs for production, administration, and sales would be $25 per…
The table given below lists the relevant cost items for a specific system purchase. The operating expenses for the new system are $10,000 per year, and the useful life of the system is expected to be five years. The salvage value for depreciation purposes is equal to 25% of the hardware cost. Cost Item Cost Hardware $160,000 Training $15,000 Installation $15,000 a) What is the Book Value (BV) of the device at the end of year three if the Straight Line (SL) depreciation method is used? b) Suppose that after depreciating the device for two years with the SL method, the firm decides to switch to the double declining balance depreciation method for the remainder of the device's life (the remaining three years). What is the device's BV at the end of four years?
Alliance Manufacturing Company is considering the purchase of a new automated drill press to replace an older one. The machine now in operation has a book value of zero and a salvage value of zero. However, it is in good working condition with an expected life of 10 additional years. The new drill press is more efficient than the existing one and, if installed, will provide an estimated cost savings (in labor, materials, and maintenance) of $6,000 per year. The new machine costs $25,000 delivered and installed. It has an estimated useful life of 10 years and a salvage value of $1,000 at the end of this period. The firm’s cost of capital is 14 percent, and its marginal income tax rate is 40 percent. The firm uses the straight-line depreciation method.a. What is the net cash flow in year 0 (i.e., initial outlay)?b. What are the net cash flows after taxes in each of the next 10 years?c. What is the NPV of the investment?d. Should Alliance replace its existing drill press?
Milling, Inc. is considering a new milling machine. The machine costs $125,000. They can received a $15,000 trade in allowance for the old milling machine. The new machine can be used to generate $35,500 in annual revenue. Cash operation expenses are estimated to be $14,500 per year. The machine has a useful life of 15 years and annual depreciation expense would be $9,500. The machine would require a $5,100 maintenance in year 7. The machine has an approximate salvage value of $12,300 at the end of its useful life. The company has a 10% minimum rate of return. The net present value of this investment is? $63,112.75 $35,978.80 $55,820.11 $50,049.40
The equivalent annual worth of the process currently used in manufacturing motion controllers is AW = $-62,000 per year. A replacement process is under consideration that will have a first cost of $64,000 and an operating cost of $38,000 per year for the next 3 years. Three different engineers have given their opinion about what the salvage value of the new process will be 3 years from now as follows: $10,000, $13,000, and $18,000. Is the decision to replace the process sensitive to the salvage value estimates at the company’s MARR of 15% per year?
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 five years. It can be sold now for $56,000. Variable manufacturing costs are $43,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Purchase price Variable manufacturing costs per year Machine A $ 123,000 19,000 Machine B $136,000 15,000 (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? Complete this question by entering your answers in the tabs below. Req A Req B Req C and D Compute the income increase or decrease from replacing the old machine with Machine B. Note:…
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The Mowbot plant must replace an existing HVAC unit (doing nothing is not an option). You are evaluating two pieces of equipment. Each unit offers a saving in annual energy cost over the existing equipment. Alternative Unit A Unit B Unit C Up front cost $44,000 $65,000 $84,000 Operating cost/year $1.900 $1.400 $900 Energy savings / year $14,000 $16,500 $17,500 Salvage Value $2,000 $4,000 $5,000 Economic life, years 7. 7. Mowbot's MARR is 12%. Based on annual worth analysis (not incremental), which unit should you recommend? HTML Editora BI 工E三 E三xi x ミ = ECE 12pt Paragraph
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