Unequal Lives Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $225,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $95,000 per year; and Machine 360-6, which has a cost of $375,000, a 6-year life, and after-tax cash flows of $104,500 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins's cost of capital is 10%. Calculate the two projects' extended NPVs. Do not round intermediate calculations. Round your answers to the nearest dollar. Machine 190-3: $ 11,750 Machine 360-6: $ 80,651 Should the firm replace its old knitting machine? If so, which new machine should it use? The firm should replace its old knitting machine with Machine 360-6 By how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Round your answer to the nearest dollar. $ 68,901 What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Round your answers to the nearest dollar. Machine 190-3: $ 4,724 Machine 360-6: $ 18,527 N A
Unequal Lives Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $225,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $95,000 per year; and Machine 360-6, which has a cost of $375,000, a 6-year life, and after-tax cash flows of $104,500 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins's cost of capital is 10%. Calculate the two projects' extended NPVs. Do not round intermediate calculations. Round your answers to the nearest dollar. Machine 190-3: $ 11,750 Machine 360-6: $ 80,651 Should the firm replace its old knitting machine? If so, which new machine should it use? The firm should replace its old knitting machine with Machine 360-6 By how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Round your answer to the nearest dollar. $ 68,901 What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Round your answers to the nearest dollar. Machine 190-3: $ 4,724 Machine 360-6: $ 18,527 N A
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...
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Transcribed Image Text:Unequal Lives
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3,
which has a cost of $225,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $95,000 per year; and Machine
360-6, which has a cost of $375,000, a 6-year life, and after-tax cash flows of $104,500 per year. Knitting machine prices are not expected to rise
because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins's cost of capital is 10%.
Calculate the two projects' extended NPVs. Do not round intermediate calculations. Round your answers to the nearest dollar.
Machine 190-3: $ 11,750
Machine 360-6: $ 80,651
Should the firm replace its old knitting machine? If so, which new machine should it use?
The firm should replace its old knitting machine with Machine 360-6
By how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Round your
answer to the nearest dollar.
$ 68,901
What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Round your answers to the nearest dollar.
Machine 190-3: $ 4,724
Machine 360-6: $ 18,527
N
A
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