Viable Corp. purchases machines for use in its plant. Machine Type A is typical of these ma- chines. Currently, Viable is considering the purchase of a new Type A machine. Two different brand names are being considered. Viable expects a 12% return on its plant investments Brand A Brand B $90,000 Cost (cash basis). Operating expense to operate the machine (per year).... Estimated useful life (years)... ... $100,000 $7,000 $8,000 8 Estimated residual value (% of cost) 20% 10% Required a) Compute the present value of the costs of the two alternative brands of machines (Assume that all variables, other than the four listed above, are identical for both brands). b) Which machine should Viable purchase? Are any other factors besides our computations relevant? Prepare the response in memo form to senior management.
Viable Corp. purchases machines for use in its plant. Machine Type A is typical of these ma- chines. Currently, Viable is considering the purchase of a new Type A machine. Two different brand names are being considered. Viable expects a 12% return on its plant investments Brand A Brand B $90,000 Cost (cash basis). Operating expense to operate the machine (per year).... Estimated useful life (years)... ... $100,000 $7,000 $8,000 8 Estimated residual value (% of cost) 20% 10% Required a) Compute the present value of the costs of the two alternative brands of machines (Assume that all variables, other than the four listed above, are identical for both brands). b) Which machine should Viable purchase? Are any other factors besides our computations relevant? Prepare the response in memo form to senior management.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Viable Corp. purchases machines for use in its plant. Machine Type A is typical of these ma- chines.
Currently, Viable is considering the purchase of a new Type A machine. Two different brand names
are being considered. Viable expects a 12% return on its plant investments
Brand A
Brand B
$90,000
Cost (cash basis).
Operating expense to operate the machine (per year)....
Estimated useful life (years)... ...
$100,000
$7,000
$8,000
8
Estimated residual value (% of cost)
20%
10%
Required
a) Compute the present value of the costs of the two alternative brands of machines (Assume
that all variables, other than the four listed above, are identical for both brands).
b) Which machine should Viable purchase? Are any other factors besides our computations
relevant? Prepare the response in memo form to senior management.
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