. Your company must replace an old machine. There are two offers:Purchase price Variable unit cost450,000Fixed cost/yr Life span Salvage value100,000Machine A0.158.NoneMachine B250,0000.2575,0004NoneCompany uses Straight-Line depreciation. Corporate tax rate is 40%. Cost of capital at the companyis %.(a) For y 10%, express the cost of machine A and B as functions of the annual production quantityQ.(b) For y = 10%, what is the break-even value for Q such that the company should still acquire the%3Dmachine B?(c) Replacement analysis in this setting makes what critical assumptions?

Cost of capital is the need return required to ready a capital budgeting project, such as building a…

Your company must replace an old machine. There are two offers: Purchase price Variable unit cost 450,000 Fixed cost/yr Life span Salvage value 100,000 75,000 Machine A 0.15 8. None Machine B 250,000 0.25 4. None Company uses Straight-Line depreciation. Corporate tax rate is 40%. Cost of capital at the company is 7%. (a) For y 10%, express the cost of machine A and B as functions of the annual production quantity Q. %3D (b) For y = 10%, what is the break-even value for Q such that the company should still acquire the machine B? %3D (c) Replacement analysis in this setting makes what critical assumptions?

Your company must replace an old machine. There are two offers: Purchase price Variable unit cost 450,000 Fixed cost/yr Life span Salvage value 100,000 75,000 Machine A 0.15 8. None Machine B 250,000 0.25 4. None Company uses Straight-Line depreciation. Corporate tax rate is 40%. Cost of capital at the company is 7%. (a) For y 10%, express the cost of machine A and B as functions of the annual production quantity Q. %3D (b) For y = 10%, what is the break-even value for Q such that the company should still acquire the machine B? %3D (c) Replacement analysis in this setting makes what critical assumptions?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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