Replacement AnalysisSt. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, itis still functional as originally designed and can be used for quite a while longer. A new welder will cost $181,000 and have an estimatedlife of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increaseearnings before depreciation from $27,000 to $81,500 per year. The new machine will be depreciated over its 5-year MACRS recoveryperiod, so the applicable depreciation rates are 20.00 %, 32.00 %, 19.20 %, 11.52 %, 11.52 %, and 5.76%. The applicable corporate taxrate is 25%, and the project cost of capital is 11%. What is the NPV if the firm replaces the old welder with the new one? Do not roundintermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign.$25,588

NPV means Net present value.It is a capital budgeting technique used for making investment…

Answered: Replacement Analysis St. Johns River…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 10P

See similar textbooks

Similar questions

St. Johns River Shipyards welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost 182,500 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from 27,000 to 74,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
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. Complete the following table to compute the net present value (NPV) of the investment. (Hint: Remember that, in Year 10, Alliances also receives the salvage value of the machine.) Year Cash Flow PV Interest Factor at 14%…
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?
Please see image for question to solve.
X Company is using a fully depreciated machine having a current market value of 20,000. The salvage value of the machine eight years from now would be zero. The company is considering replacing this machine by a new one costing 1,02, 500, and having an estimated salvage value of 12,500. With the use of the new machine, annual sales are expected to increase from 80,000 to 92, 500. Operating efficiencies with the new machine will save 12,500 per year as operating expenses. Depreciation will be charged on written - down basis at 25 per cent. The cost of capital is 11 per cent. The new machine has a 8-year life and the company's taxation rate is 35 per cent. Assume that book profit or loss from the sale of the asset is taxable at corporate tax rate. Should the company replace the old machine? Show calculations on incremental cash flow basis. How would your decision be affected if another new machine is available at a cost of 1,75,000 with a salvage value of 25,000. The machine is expected…
Saint John River Shipyard's welding machine is 15 years old, is fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. A new welder will cost $182, 500 and have an estimate life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase annual cash flows before taxes (not including any CCA tax shield effects) from $27,000 to $74,000 per year. The new welder falls into Class 43 with a CCA rate of 30%. The applicable corporate tax rate is 25%, and the project cost of capital is 12%. What is the NPV if the firm replaces the old welder with the new one?
The Sumitomo Chemical Corporation is considering replacing a 5-year-old machine that originally cost $50,000 and can be sold for $60,000. This machine is totally depreciated. The replacement machine would cost $125,000 and have a 5-year expected life over which it would be depreciated down using the straight-line method and have no salvage value at the end of five years. The new machine would produce savings before depreciation and taxes of $45,000 per year. Assuming a 34 percent marginal tax rate and a required return of 10%, calculate The internal rate of return and the net present value. Please show work in Excel.
Please view the following video before answering this question. Video Solution: 05.02-PR010 Click here to access the TVM Factor Table Calculator Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a first cost of $70,000 and a useful life of 15 years. At the end of its useful life, the punch has no salvage value. Annual labor costs would increase $2,200 using the gang punch, but annual raw material costs would decrease $12,000. MARR is 5%/year. Part a What is the future worth of this investment? $ eTextbook and Media Round entry to nearest dollar. The tolerance is ±2.
! Required information Two options are available for setting up a wireless meter scanner and controller. A simple setup is good for 2 years and has an initial cost of $11,000, no salvage value, and an AOC of $27,000 per year. A more permanent system has a higher first cost of $73,000, but it has an estimated life of 6 years and a salvage value of $15,000. It costs only $17,000 per year to operate and maintain. NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part. If the two options are compared using an incremental rate of return, what is the incremental cash flow in year 6? The incremental cash flow in year 6 is $
Please answer
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $69,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $23,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating income 3 Initial…

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Excel Applications for Accounting Principles

Accounting

ISBN:

9781111581565

Author:

Gaylord N. Smith

Publisher:

Cengage Learning

Managerial Accounting: The Cornerstone of Busines…

Accounting

ISBN:

9781337115773

Author:

Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS