Sheffield Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Machine A $74,600 8 years 0 $20,400 $5,130 Machine B $182,000 8 years 0 $39.900 $9,880

Sheffield Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Machine A $74,600 8 years 0 $20,400 $5,130 Machine B $182,000 8 years 0 $39.900 $9,880

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Jarett Motors is trying to decide whether it should keep its existing car washing machine or…

A: Operating Costs: Operating costs, or ongoing expenses, are the costs which are connected to the…

Q: BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it…

A: Net present value (NPV) is the difference between the present value of cash inflows and the present…

Q: The Company is evaluating the purchase of an elaborate hydraulic lift system for all of its…

A: Given: Particulars Amount Investment -340000 Life 10 Cash inflows 60000 Residual value…

Q: Múltiple Choice O O о $(53,014) $(49,014) $(55,014) $(70,014)

A: It represents the amount of profitability in absolute dollar terms generated by the project after…

Q: Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking…

A: The NPV of a project measures the profitability of the project by discounting its cash flows to the…

Q: Under what conditions is a market-based transfer price most likely to be used?

A: Transfer Pricing: It is termed as the cost which is charged by the one department of the company…

Q: A machine purchased three years ago for $311,000 has a current book value using straight-line…

A: The decision for keeping a machine and replacing the machine is taken by the company by comparing…

Q: Daxter Bakers is trying to decide whethe Should keep its existing bread-making machi inological…

A: Let us first understand the meaning of opportunity cost Opportunity cost is the benefit foregone…

Q: The management of Kunkel Company is considering the purchase of a $25,000 machine that would reduce…

A: 1. Calculation of Net present Value YEAR AMOUNT P.V FACTOR PRESENT VALUE 0 25,000 1…

Q: Saint John River Shipyard's welding machine is 15 year old, is fully depreciated, and has no salvage…

A: Net Present Value (NPV) is a financial measure used to analyze the profitability of an investment by…

Q: D) $408,000.

A: Manufacturing overhead is the indirect cost incurred by a factory for the production of goods. It is…

Q: Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van…

A: Exchange transactionsThe company purchasing one product or asset by selling another asset or product…

Q: BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it…

A: NPV means Net present value.It is computed by deducting initial investment from present value of…

Q: A business firm is contemplating to purchase new equipment. The purchase price is 60,000 and its…

A: The question pertains to the concept of capital budgeting tools and time value of money and has been…

Q: Calculate the net present value and profitability index of each machine. Assume a 9% discount rate.…

A: Net present value of machine can be calculated as initial investment done minus present value of…

Q: BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it…

A: Net present value is computed as = Present value of cash inflows - Initial Investment Profitability…

Q: Sandhill Corp. is considering purchasing one of two new diagnostic machines. Either machine would…

A: Net present value method : It is defined as the difference between the present value of cash inflows…

Q: Dexter Inc. is considering replacing its existing computer system with a new computer system. The…

A: Answer - No do not replace, additional costs of $3,500. Working In the existing computer system…

Q: Vernon Company is considering the replacement of some of its manufacturing equipment. Information…

A: Relevant cost refers to a cost that is related to a specific management decision, and which could be…

Q: A machine purchased 3 years ago for $140,000 is now too slow to satisfy the demand of the customers.…

A: Current Machine (3 years old): - Initial cost: $140,000 (not relevant for future costs) -…

Q: Wizard Company has an old machine that is fully depreciated but has a current salvage value of…

A: Data given:Salvage value of fully depreciated machine= $10,000Cost of new machine= $60,000Useful…

Q: llowing two companies: If computer B was to be purchased and kept forever (after 13 years) withou

A: Since machine B is selected then working is restricked to Machine B only. Present Value of Machine =…

Q: Cullumber Corp. is considering purchasing one of two new diagnostic machines. Either machine would…

A: NPV ( Net Present Value) is a method that is used to assess an investment's profitability by…

Q: A company is trying to decide between two different conveyor belt systems. System A costs $300,000,…

A: Given, System A costs $300,000 Pretax annual costs $101000 System B costs $380,000

Q: Should Marine Industrial Coatings replace the existing computer system with the new system? What are…

A: Capital Budgeting helps in deciding whether to continue with the existing option or to purchase a…

Q: 2. Super Apparel wants to replace an old machine with a new one. The new machine would increase…

A: The objective of the question is to calculate the Accounting Rate of Return (ARR) for the new…

Q: Bakers Pride Corporation is considering purchasing one of two new mixing machines. Either machine…

A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Q: Crane Corp. is considering purchasing one of two new diagnostic machines. Either machine would make…

A: Machine B:Original cost (Initial Cost) = $186,000Estimated annual cash inflows (CFt) =…

Q: Bradley Industries is considering replacing a machine that is presently used in its production…

A: Relevant cost in management The term relevant cost really matters. The relevant cost is the cost…

Q: Crane Corp. is considering purchasing one of two new diagnostic machines. Either machine would make…

A: Net present value is the present value of cash flow minus initial investment.The Profitability index…

Q: Nick's Novelties, Inc. is considering the purchase of electronic pinball machines to place in game…

A: The present value is the value of the sum received at time 0 or the current period. It is the value…

Q: Oriole Corp. is considering purchasing one of two new diagnostic machines. Either machine would make…

A: A financial term called net present value (NPV) is used to assess how profitable a project or…

Q: Ahmed Corporation is considering replacing a machine that is presently used in its production…

A: Relevant cost is the cost that is considered while making a decision for the business operation of…

Concept explainers

Management by Exception

A manager’s job is a very tough one. A manager needs to look at the various areas of work and as a manager he has to look after two or more important jobs or activities at the same time for the growth of the business. In order to do all these things in an effective manner, a manager must adopt or practice different management styles and tactics.

Question

Sheffield Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company
to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below.
Original cost
Estimated life
Salvage value
Estimated annual cash inflows
Estimated annual cash outflows
Machine A
$74,600
8 years
0
$20,400
$5,130
Machine B
$182,000
8 years
0
$39.900
$9,880

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative,
use either a negative sign preceding the number eg-45 or parentheses eg (45), Round answer for present value to 0 decimal places, eg. 125 and
profitability index to 2 decimal places, eg. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided)
Net present value
Profitability index
Machine A
Which machine should be purchased?
should be purchased.
Machine B

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Working note #1:- Present Value Factor

VIEW

Step 3: Working note #2:- Annual net cash flows

VIEW

Step 4: Working note #3:-

VIEW

Step 5: Working note #4:-

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 6 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Solve both problem with details explanation , otherwise I will give you downvote
2. Super Apparel wants to replace an old machine with a new one. The new machine would increase annual revenue by $200,000 and annual operating expenses by $80,000. The new machine would cost $400,000. The estimated useful life of the machine is 10 years with zero salvage value. i. Compute Accounting Rate of Return (ARR) of the machine using above information. ii. Should Super Apparel purchase the machine if management wants an Accounting Rate of Return of 19% on all capital investments? Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.
3
Kendra Company is considering replacing an old machine. The old machine was purchased for $100,700 and has a book value of $40,700 and should last four more years with no salvage value. The company believes that it could currently sell the old machine for $20,700. The new machine cost $80,700 and will have a 4-year life and a $10,700 salvage value. Currently, it costs $20,700 annually to operate the old machine. The new machine is more efficient and should reduce operating cost by 50%. Based on quantitative analysis, should Kendra Company replace the old 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%…
Sandhill Corp, is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided here. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Machine A $77,300 8 years 0 $20,200 $4,970 Machine B $180,000 8 years 0 $40,000 $9,860
mn.3
Please do not give solution in image format ? And Explain Proper Step by Step.
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?
Answer complete please,,, answer in text form without image
City Towing is considering the purchase of a new tow truck. The garage currently has no tow truck, and the $100,000 price tag for a new truck would be a major expenditure. The expected useful life is 7 years. The owner of the garage has compiled the following estimates in trying to determine whether the tow truck should be purchased: Purchase of truck $100,000 Salvage value $15,000 Additional net inflows per year $16,000 Repairs required at the end of year 3 $5,000 Minimum required return on investments 12%
Please answer net present value and profitability index: