Replace EquipmentA machine with a book value of $251,000 has an estimated six-year life. A proposal is offered to sell the old machine for $216,200 and replace it with a newmachine at a cost of $283,00o. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from$50,000 to $40,000.Prepare a differential analysis dated October 3 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). If anamount is zero, enter "O". For those boxes in which you must enter subtracted or negative numbers use a minus sign.Differential AnalysisContinue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)October 3Differential Effecton Income(Alternative 2)Continue withOld Machine(Alternative 1) (Alternative 2)Replace OldMachineRevenues:Proceeds from sale of old machineCosts:Purchase priceDirect labor (6 years)$Continue with the old machineReplace the old machinewith the old machine (Alternative 1) or replace the old machine (Alternative 2)?

Replace Equipment:The productive life of an asset may be exhausted before its estimated lifetime.…

Answered: Replace Equipment A machine with a book…

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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Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and no salvage value. The machine will lower operating costs by $18,000 per year. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the company's required rate of return is 17% and the net present value of the investment before considering the qualitative benefits is $(29,404), the minimum dollar value per year that must be provided by the machine's qualitative benefits to justify the $100,000 investment is closest to: Multiple Choice O O о O $7,787. $8,247. $7,497. $8,067.
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 = || % %
Bisha Corporation is considering trading a truck with a book value of SAR 52,000 with an estimated five-year life for a new truck that would cost SAR 80,000. The old truck could be sold for SAR 55,000. The new truck has a five-year life with no residual value. The new truck would reduce annual operating costs by SAR 4,300 per year. Prepare a differential analysis on whether to continue with the old machine (Alternative 1) or purchase the new machine (Alternative 2).
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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The management of Kunkel Company is considering the purchase of a $29,000 machine that would reduce operating costs by $6,500 per year. At the end of the machine's five-year useful life, it will have zero salvage value. The company's required rate of return is 16%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. Required: 1. Determine the net present value of the investment in the machine. 2. What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the net present value of the investment in the machine. (Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount. Use the appropriate table to determine the discount factor(s).) Net present value
A company is considering replacing an old piece of machinery, which cost $597,100 and has $352,000 of accumulated depreciation to date, with a new machine that has a purchase price of $484,900. The old machine could be sold for $64,000. The annual variable production costs associated with the old machine are estimated to be $155,100 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,700 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffecton Income(Alternative 2) Revenues:…
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $117,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $45,000. The machine would require a $10,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $34,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? I. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. II. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included…
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Previous attempt to ask only received partial correct answers: New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,030,000, and it would cost another $18,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $537,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $20,000. The sprayer would not change revenues, but it is expected to save the firm $377,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. What is the Year-0 net cash flow? (1068500 is not a correct answer) $ What are the net…

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