**Replace Equipment**A machine with a book value of $250,900 has an estimated six-year life. A proposal is offered to sell the old machine for $217,500 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 $50,900 to $40,700.**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 with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effects (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 (Alternative 2)?**[There are blank spaces provided for calculations and the conclusion.]--- **Explanation:**This table is designed for a differential analysis of the financial impact of continuing with the old machine versus replacing it with a new one. The analysis separates revenues and costs into different categories, comparing them across the two alternatives. This will help determine the financial benefits or losses associated with each decision option.

If there is profit on replacing the machine, then the company should replace the machine. If there…

Replace Equipment A machine with a book value of $250,900 has an estimated six-year life. A proposal is offered to sell the old machine for $217,500 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 $50,900 to $40,700. 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 2) (Alternative 1) (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 (Alternative 2)?

Replace Equipment A machine with a book value of $250,900 has an estimated six-year life. A proposal is offered to sell the old machine for $217,500 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 $50,900 to $40,700. 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 2) (Alternative 1) (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 (Alternative 2)?

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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Sunset Golf Products is considering whether to upgrade its equipment. Managers are considering two options. Equipment manufactured by Rouse Inc. costs $900,000 and will last four years and have no residual value. The Rouse equipment will generate annual operating income of $153,000. Equipment manufactured by Riverside Limited costs $1,375,000 and will remain useful for five years. It promises annual operating income of $247,500, and its expected residual value is $100,000. Which equipment offers the higher ARR? First, enter the formula, then calculate the ARR (Accounting Rate of Return) for both pieces of equipment. (Enter the answer as a percent rounded to the nearest tenth percent.) Accounting rate of return 17.0 Rouse Riverside Average annual operating income from asset 153,000 Initial investment 900,000 = || % %
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Check in Sleep Self- Assessment Give Feedback Holmes Manufacturing is considering a new machine that costs $290,000 and would scor reduce pretax manufacturing costs by $90,000 a annually. The new machine will be fully depreciated at the time of purchase Management thinks the machine would hava a value of $25,000 at the end of its 5-year operating life. Net operating working capital would increase by $28,000 initially, but it would be recovered at the end of the 40's 5-year life. Holmes's marginal tax is 25%, and a 12%. WACC is appropriate Ybm X 213500 for the project. ulan alloups gro a) Calculate them Prycct's NPV Negative value, if any, should be indicated by allmious sign. Do not Yound intermediate calculations. Rand your answer to the nearest cent. wwzno www Liavos 20orhol wolo $ Project rate is 8 = AA Calculate the project's IRR. % Calculate the project's MIRR % Calculate the project's pay back years b. Assume management is unsure about the $90,000 cost savings - this figure could…
Blossom Company has a factory machine with a book value of $85,000 and a remaining useful life of 5 years. It can be sold for $25,000. A new machine is available at a cost of $345,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $550,000 to $450,000. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Retain Equipment Variable manufacturing costs $ Replace Equipment $ Net Income Increase (Decrease) New machine cost Sell old machine Total $ The old factory machine should be tA $ $
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