Rory Company has an old machine with a book value of $83,000 and a remaining five-year useful life. Rory is considering purchasing anew machine at a price of $112,000. Rory can sell its old machine now for $67,000. The old machine has variable manufacturing costsof $40,000 per year. The new machine will reduce variable manufacturing costs by $16,000 per year over its five-year useful life.(a) Prepare a keep or replace analysis of income effects for the machines.(b) Should the old machine be replaced?Complete this question by entering your answers in the tabs below.Required A Required BPrepare a keep or replace analysis of income effects for the machines.Keep or Replace AnalysisRevenuesSale of existing machineCostsPurchase of new machineVariable manufacturing costsIncome (loss)KeepRequired A$Replace67,000112,000Income Increase(Decrease) if replacedRequired B >

If there is increase in income by replacing, then the old machine should be replaced. If there is decrease in income by replacing, then the old machine should not be replaced.Workings: b) Yes, the machine should be replaced.

Answered: Rory Company has an old machine with 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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1.
Big Rock Brewery currently rents a bottling machine for $52,000 per year, including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two alternate options: option a is to purchase the machine it is currently renting for $165,000, which will require $21,000 per year in ongoing maintenance expenses, or option b, which is to purchase a new, more advanced machine for $255,000, which will require $19,000 per year in ongoing maintenance expenses and will lower bottling costs by $10,000 per year. Also, $36,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines are subject to a CA rate of 25% and there will be a negligible salvage value in 10 years' time (the end of each machine's life). The marginal corporate tax…
Beryl's Iced Tea currently rents a bottling machine for $51,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $35,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The corporate tax rate is 30%. Should Beryl's Iced Tea continue…
You are considering adding a new item to your company’s line of products. The machine required to manufacture the item costs $200000, and it depreciates straight-line over 4 years. The new item would require a $30000 increase in inventory and a $15000 increase in accounts payable. You plan to market the items for four years and then sell the machine for $40000. You expect to sell 2000 items per year at a price of $300. You expect manufacturing costs to be $220 per item and the fixed cost to be $3,000 per year. If the tax rate is 30% and your weighted average cost of capital is 12% per year, what is the net present value of selling the new item? ) $159,744 2) $73,903 3) $191,692 4) -$159,744 5) -$191,692
Billy Bob's Crab & Oyster Shack wants to reduce the cost of labour by replacing some labour with machines. If Billy Bob's were to purchase a machine to shuck the oysters, it can save $50,000 a year for 10 years. The new machine will cost $650,000 and it will be worth $50,000 at the end of the 10 year period. The firm believes it will need $10,000 in spare parts inventory (increase in NWC), which it can sell for the $5,000 at the end of the project. The machine has a 20% CCA rate and the firm has a 15% tax rate. If they want a 20% return on their investment what is the NPV? Round your answer to the nearest dollar, no dollar sign, no commas, put negative sign if needed.
Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards more efficiently. The punch has a fırst cost of $95,000 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 $5,000 using the gang punch, but annual raw mnaterial costs would decrease $7,000. MARR is 6.25 %/year. Click here to access the TVM Factor Table Calculator Part a Your answer is incorrect. What is the present worth of this investment? $
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $360,500 and will generate $100,000 per year for 5 years. Calculate the IRR for this piece of equipment. (Click here to see present value and future value tables) fill in the blank 1%
PT Tamaro has a plastic manufacturing machine. To increase its production capacity, PT Tamaro plans to buy a new machine at a price of 2,400 dollars and an installation of 100 dollars. This machine has an economic life of 5 years with no residual value. projected with this new machine can increase the level of sales to 2000 dollars per year. operational costs that must be borne by the company are the HPP of 40% of sales and $600 in overhead costs including $300 in depreciation costs. The current tax rate is 20% and the desired rate of return is 20%. Make an analysis whether PT Tamaro's plan to purchase this machine is feasible to implement. Use Discounted Payback Period and Net Present Value?
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:…
Beryl's Iced Tea currently rents a bottling machine for $52,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $25,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $39,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 20%. Should Beryl's Iced…
Big Rock Brewery currently rents a bottling machine for $51,000 per year, including all maintenance expenses. The company is considering purchasing a machine instead and is comparing two alternate options: option a is to purchase the machine it is currently renting for $160,000, which will require $20,000 per year in ongoing maintenance expenses, or option b, which is to purchase a new, more advanced machine for $250,000, which will require $19,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $36,000 will be spent upfront in training the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines are subject to a CCA rate of 45% and there will be a negligible salvage value in 10 years' time (the end of each machine's life). The marginal corporate tax…
Beryl's Iced Tea currently rents a bottling machine for $55,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $39,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea continue…

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