Proposed situation:Fully automated machine --- no operator requiredCost of machine$60,000After tax installation fee$3,000---After-tax shipping fee - $3,000Cost of maintenance. $3,000 per yearCost of defectsExpected life ---5 yearsSalvage value- $20,000---------$3,000 per yearDepreciation method --- simplified straight-lineMethod over 5 years No2. The Scotty Corporation, maker of Scotty's electronic components, is consideringreplacing one of its current hand-operated assembly machines with a new fully automatedmachine. This replacement would mean the elimination of one employee, generatingsalary and benefit saving. Given the following information, determine the cash flowsassociated with this replacement.Existing situation:One full-time machine operator --- salary and benefits,$25,000 per yearCost of maintenance -- $2,000 per yearCost of defects --- $6,000 per yearOriginal depreciable value of old machine --- $50,000Annual depreciation --- $5,000 per yearExpected life 10 yearsAge5 years oldExpected salvage value in 5 years. $0Current salvage valueMarginal tax rate --- 34 percent$5,000----------

The cash flow stream for a replacement project comprise of three components:- (1) initial investment…

Answered: The Scotty Corporation, maker of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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BAK 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. Machine A Machine B Original cost $ 77,500 $ 186,000 Estimated life 8 years 8 years Salvage value $ 19,500 $ 39,600 Estimated annual cash inflows $ 5,040 $ 9,800 Estimated annual cash outflows Click here to view the factor table. 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, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine A Machine B Net present value Profitability index Which machine should be purchased? should be…
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BAK 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. Machine A Machine B Original cost $74,000 $179,000 Estimated life 8 years 8 years Salvage value 0 0 Estimated annual cash inflows $19,500 $39,500 Estimated annual cash outflows $4,800 $9,800 Click here to view the factor table.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, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine A Machine B Net present value…
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