Intermediate Accounting
1st Edition
ISBN: 9780132162302
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 11, Problem 11.5P
To determine
The analysis of the effect of depreciation of the financial statement and cash flows .
Given information:
Exiting scenario:
Cost of machine is $10,000.
Useful life is 10 years.
Salvage value is 0.
Proposed scenario:
Cost of machine is $10,000.
Estimated life is 7 years.
Salvage value is $3,000.
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At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The
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Jones Co. is considering replacing an existing piece of equipment. The project involves the following:
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t = 0.
• The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of
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• The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage
value (at year 0) of $300,000.
• Replacing the old machine will require an investment in net operating working capital (NOWC) of $60,000 that will…
At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment.
The company will need to do replacement analysis to determine which option is the best financial decision for the company.
Price Co. is considering replacing an existing piece of equipment. The project involves the following:
•
The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years 1–6).
•
The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year).
•
The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000.
•
Replacing the old machine will require an investment in net operating working capital (NOWC) of $50,000 that will be recovered at the end…
At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company.Price Co. is considering replacing an existing piece of equipment. The project involves the following:• The new equipment will have a cost of $1,200,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0.• The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year).• The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000.• Replacing the old machine will require an investment in net operating working capital (NOWC) of $30,000 that will be…
Chapter 11 Solutions
Intermediate Accounting
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