Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
13th Edition
ISBN: 9781337817332
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 13, Problem 10P
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To determine:
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X Company is using a fully depreciated machine having a current market value of 20,000. The salvage value of
the machine eight years from now would be zero. The company is considering replacing this machine by a new
one costing 1,02, 500, and having an estimated salvage value of 12,500. With the use of the new machine,
annual sales are expected to increase from 80,000 to 92, 500. Operating efficiencies with the new machine will
save 12,500 per year as operating expenses. Depreciation will be charged on written - down basis at 25 per cent.
The cost of capital is 11 per cent. The new machine has a 8-year life and the company's taxation rate is 35 per
cent. Assume that book profit or loss from the sale of the asset is taxable at corporate tax rate. Should the
company replace the old machine? Show calculations on incremental cash flow basis. How would your decision
be affected if another new machine is available at a cost of 1,75,000 with a salvage value of 25,000. The
machine is expected…
Replacement Analysis
The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $100,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $10,000 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $50,000. The firm's tax rate is 35%, and the…
Replacement Analysis
The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $100,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $10,000 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $50,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $50,000. The firm's tax rate is 35%, and the…
Chapter 13 Solutions
Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
Ch. 13 - Define each of the following terms:
Project cash...Ch. 13 - Prob. 2QCh. 13 - Why is it true, in general, that a failure to...Ch. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Why are interest charges not deducted when a...Ch. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Distinguish among beta (or market) risk,...
Ch. 13 - Prob. 11QCh. 13 - Talbot Industries is considering launching a new...Ch. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Wendys boss wants to use straight-line...Ch. 13 - New-Project Analysis
The Campbell Company is...Ch. 13 - Prob. 7PCh. 13 - Inflation Adjustments
The Rodriguez Company is...Ch. 13 - Prob. 10PCh. 13 - Scenario Analysis Shao Industries is considering a...Ch. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Prob. 4MCCh. 13 - Prob. 5MCCh. 13 - Prob. 6MCCh. 13 - Calculate the cash flows for each year. Based on...Ch. 13 - Prob. 8MCCh. 13 - (1) What are the three types of risk that are...Ch. 13 - Prob. 12MCCh. 13 - Prob. 13MCCh. 13 - What is a real option? What are some types of real...
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