Blossom Company has a machine that affixes labels to bottles. The machine has a book value of $81,600 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $306,000 that will have a 3-year useful life with no salvage value. The new machine will lower annual variable production costs from $530,400 to $418,200. Prepare an analysis showing whether the old machine should be retained or replaced. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.(45).) Variable manufacturing costs New machine cost Net savings over 3 years $ Retain Equipment $ Replace Equipment $ Net Income Change

Blossom Company has a machine that affixes labels to bottles. The machine has a book value of $81,600 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $306,000 that will have a 3-year useful life with no salvage value. The new machine will lower annual variable production costs from $530,400 to $418,200. Prepare an analysis showing whether the old machine should be retained or replaced. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.(45).) Variable manufacturing costs New machine cost Net savings over 3 years $ Retain Equipment $ Replace Equipment $ Net Income Change

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?
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Kalamoo Company has a machine that affixes labels to bottles. The machine has a book value of $60,000 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $225,000 that will have a 5-year useful life with no salvage value. The new machine will lower annual variable production costs from $400,000 to $310,000. Should the old machine be retained or replaced?
Bryant Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $400,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000 to $500,000. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) RetainEquipment ReplaceEquipment Net IncomeIncrease (Decrease) Variable manufacturing costs $enter a dollar amount $enter a dollar amount $enter the difference between the two previous amounts in the row New…
Elmdale Company has a machine that affixes labels to bottles. The machine has a book value of $80,000 and a remaining useful life of 3 years and no salvage value. A new, more efficient machine is available at a cost of $300,000 that will have a 3-year useful life with no salvage value. The new machine will lower annual variable production costs from $520,000 to $410,000. Prepare an analysis showing whether the old machine should be retained or replaced. (If the net income change is negative, enter the amounts using either a negative sign preceding the number e.g. -45 or parenthesis e.g. (45). Do not leave any answer field blank. Enter O for amounts.) $ Retain Equipment $ Replace Equipment $ $ Net Income Change
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