Problem 11-09 (Replacement Analysis)◄ Question 4 of 6 ▸Check My Workrtially CorrectReplacement AnalysisThe Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. Ifkept, the steamer will have depreciation expenses of $700 for 5 years and $345 for the sixth year. Its current book value is $3,845, and it can be sold on an Internetauction site for $4,455 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life.Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,200, and has an estimated useful life of 6 years with an estimatedsalvage value of $1,400. This steamer falls into the MACRS 5-years class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine's much greater efficiency wouldreduce operating expenses by $1,600 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accountspayable would simultaneously increase by $700. Gilbert's marginal federal-plus-state tax rate is 25%, and the project cost of capital is 13%.What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.$Should it replace the old steamer?The old steamer shouldbe replaced.

The net present value compares an asset's current value to its potential future value. A project's…

Answered: What is the NPV of the project? Do not…

Principles of Accounting Volume 1

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Chapter11: Long-term Assets

Section: Chapter Questions

Problem 13PB: Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and...

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Required information Use the following information for the Exercises below. (Algo) [The following information applies to the questions displayed below.] NewTech purchases computer equipment for $261,000 to use in operating activities for the next four years. It estimates the equipment's salvage value at $30,000. Exercise 8-7 (Algo) Straight-line depreciation LO P1 Prepare a table showing depreciation and book value for each of the four years assuming straight-line depreciation. Choose Numerator: Year Year 1 Year 2 Year 3 Year 4 Total Straight-Line Depreciation Choose Denominator: Annual Depreciation = = Annual Depreciation Expense Depreciation expense Year-End Book Value
Problem 3: A machine currently in use was originally purchased 2 years ago for $40,000. The machine is being depreciated under MACRS using a 5-year recovery period; it has 3 years of usable life remaining. The current machine can be sold today to net $42,000 after removal and cleanup costs. A new machine, using a 3-year MACRS recovery period, can be purchased at a price of $140,000. It requires $10,000 to install and has a 3-year usable life. If the new machine is acquired, the investment in accounts receivable will be expected to rise by $10,000, the inventory investment will increase by $25,000, and accounts payable will increase by $15,000. Earnings before depreciation, interest, and taxes are expected to be $70,000 for each of the next 3 years with the old machine and to be $120,000 in the first year and $130,000 in the second and third years with the new machine. At the end of 3 years, the market value of the old machine will equal zero, but the new machine could be sold to net…
Problem 3: A machine currently in use was originally purchased 2 years ago for $40,000. The machine is being depreciated under MACRS using a 5-year recovery period; it has 3 years of usable life remaining. The current machine can be sold today to net $42,000 after removal and cleanup costs. A new machine, using a 3-year MACRS recovery period, can be purchased at a price of $140,000. It requires $10,000 to install and has a 3-year usable life. If the new machine is acquired, the investment in accounts receivable will be expected to rise by $10,000, the inventory investment will increase by $25,000, and accounts payable will increase by $15,000. Earnings before depreciation, interest, and taxes are expected to be $70,000 for each of the next 3 years with the old machine and to be $120,000 in the first year and $130,000 in the second and third years with the new machine. At the end of 3 years, the market value of the old machine will equal zero, but the new machine could be sold to net…
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Montezuma Inc. purchases a delivery truck for $20,000. The truck has a salvage value of $8,000 and is expected to be driven for ten years. Montezuma uses the straight-line depreciation method. Calculate the annual depreciation expense. After five years of recording depreciation, Montezuma determines that the delivery truck will be useful for another five years (ten years in total, as originally expected) and that the salvage value will increase to $10,000. Determine the depreciation expense for the final five years of the assets life, and create the journal entry for years 6â€“10 (the entry will be the same for each of the five years).
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Problem 4: A heavy planner was purchased 12 years ago for P 50,000 with no salvage value. As the life of the planner was 20 years, a depreciation reserve has been provided on that basis. Now the owner wishes to replace the old planner by a newly – designed planner with several advantages. The old planner can sell for P 10,000. If the new planner costs P 70,000, how much new capital will be required to make the purchase if the depreciation is computed using SHOW COMPLETE SOLUTION -SL Method -SF Method at 10% -SYD Method
• Option 1: Continue to use the old machine: A machine now in use, whichwas bought five years ago for $5.000, has been fully depreciated. It can besold for $3,000, but could be used for three more years (remaining usefullife), al the end of which time it would have no salvage value. The annualoperating and maintenance costs for the old machine amount to $12,00.• Option 2: Replace the old machine: A new machine can be purchased atan invoice price of $ 15.000 to replace the present equipment. Because ofthe nature of the manufactured product, the new machine has an expectedeconomic life of three years, and it will have no salvage value at the end orthat time. The new machine's expected operating and maintenance costsamount to $2,500 for the first year and $3,500 for each of the next two years. The income tax rate is 35%. Any gains will also be taxed at 35%. The allowed depreciation amounts for the new machine are $1,500 during the first year. and $2.600 per year for the next two years.…
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Problem 7. Mochit Co. is deciding whether-to purchase a new machine for their operation or to keep using their existing machine. old machine new machine Original cost $22,400 $27,500 Useful life 8 years 5 years Current age 3 years Remaining life 5 years 5 years Accum. Depreciation $8,400 0 Book value $14,000 Disposal value $5,000 Annual operating cost $10,600 $5,400 Required: Calculate the difference in total cost over the next 5 years under both alternatives and determine if it is better to keep the existing machine or replace it with the new machine ?
3

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What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should it replace the old steamer? The old steamer should be replaced.