Bramble Corp. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $420000 $840000 Accumulated Depreciation 126000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $335000 $252000 If the old machine is replaced, it can be sold for $33600. The company uses straight-line depreciation with a zero salvage value for all of its assets. The net advantage (disadvantage) of replacing the old machine is $(8400) $33500 $(84000) $23600

Bramble Corp. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $420000 $840000 Accumulated Depreciation 126000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $335000 $252000 If the old machine is replaced, it can be sold for $33600. The company uses straight-line depreciation with a zero salvage value for all of its assets. The net advantage (disadvantage) of replacing the old machine is $(8400) $33500 $(84000) $23600

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...

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Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
Marigold Corp. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $430000 $630000 Accumulated Depreciation 102000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $265000 $186600 If the old machine is replaced, it can be sold for $24000. Which of the following amounts is a sunk cost? $186600 $265000 $328000 $630000
Vaughn Manufacturing is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $220500 $367500 Accumulated depreciation 88200 - 0 - Annual operating costs 294000 235200 If the old equipment is replaced now, it can be sold for $58800. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years. The company uses straight-line depreciation with a zero salvage value for all of its assets.For the 5-year period, what is the increase or decrease in net income associated with the new equipment? $88200` $58800 $(14700) $(73500)
Crane Company is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $360000 $630000 Accumulated Depreciation 90000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $280000 $190600 If the old machine is replaced, it can be sold for $24000. Which of the following amounts is a sunk cost? ○ $190600 O $280000 ○ $270000 O $630000
Salsa Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 89,300 Remaining useful life 10 years Useful life 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. How much is the sunk cost?
Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Purchase Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $30,000. Both machines have a remaining useful life of 10 years. The net advantage (disadvantage) of replacing the old machine is Group of answer choices $30,000 12,000 $24,000 $120,600
Bonita Industries is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $250000 $500000 Accumulated Depreciation 75000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $205000 $150000 If the old machine is replaced, it can be sold for $20000. The company uses straight-line depreciation with a zero salvage value for all of its assets.The net advantage (disadvantage) of replacing the old machine is $(50000) $(5000) $20500 $70000
Kingbird is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $229500 $382500 Accumulated depreciation 91800 - 0 - Annual operating costs 306000 244800 If the old equipment is replaced now, it can be sold for $61200. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.For this question only, assume that six months ago Chung’s equipment manager spent $30600 refurbishing the old equipment. Additionally, the equipment manager has determined that the new equipment can be rented out during idle periods to generate $1836 per year. Using this new information, what is the total cash flow associated with replacing the equipment? ($45900) ($321300) ($342720) ($312120)
Lotion Company is considering replacing a machine that is presently used in the production of its bath products. The following data are available: Old Machine Replacement Machine Original cost R180 000 R140,000 Useful life in years 10 5 Current age in years 5 0 Book value R100 000 --- Disposal value now R32 000 --- Disposal value in 5 years 0 0 Annual cash operating costs R28 000 R16 000 Identify which of the data provided in the table is a sunk cost? the annual cash operating costs of the old machine the original cost of the old machine the disposal value of…
DeCablo, Inc. owns a machine costing P105,000. This has an estimated useful life of 6 years with a scrap value of P15,000 depreciated using straight-line method. After using this for two (2) years the operating efficiency of the machine is decreasing. A repair cost amounting to P30,000 is needed to restore the machine to its normal capacity. The machine can be sold now to a ready buyer for P60,000. The management is contemplating to purchase a new machine now at a cost of P150,000 and can be depreciated over four (4) years with no salvage value using sum of year’s digit (SYD) method. After its economic life of 4 years its market value is P50,000. The company will incurs a shipping and installation of cost of P40,000 and an increase in working capital of P25,000. With this new machine, revenues is expected to increase by P125,000 and cash expenses due to this replacement will also increase by P60,000. Cost of capital is estimated to be 15% and corporate tax of 25% Required: Necessary…
DeCablo, Inc. owns a machine costing P105,000. This has an estimated useful life of 6 years with a scrap value of P15,000 depreciated using straight line method. After using this for two (2) years the operating efficiency of the machine is decreasing. A repair cost amounting to P30,000 is needed to restore the machine to its normal capacity. The machine can be sold now to a ready buyer for P60,000. The management is contemplating to purchase a new machine now at a cost of P150,000 and can be depreciated over four (4) years with no salvage value using sum of year’s digit (SYD) method. After its economic life of 4 years its market value is P50,000. The company will incurs a shipping and installation of cost of P40,000 and an increase in working capital of P25,000. With this new machine, revenues is expected to increase by P125,000 and cash expenses due to this replacement will also increase by P60,000. Cost of capital is estimated to be 15% and corporate tax of 25% Required: Necessary…
DeCablo, Inc. owns a machine costing P105,000. This has an estimated useful life of 6 years with a scrap value of P15,000 depreciated using straight line method. After using this for two (2) years the operating efficiency of the machine is decreasing. A repair cost amounting to P30,000 is needed to restore the machine to its normal capacity. The machine can be sold now to a ready buyer for P60,000. The management is contemplating to purchase a new machine now at a cost of P150,000 and can be depreciated over four (4) years with no salvage value using sum of year’s digit (SYD) method. After its economic life of 4 years its market value is P50,000. The company will incurs a shipping and installation of cost of P40,000 and an increase in working capital of P25,000. With this new machine, revenues is expected to increase by P125,000 and cash expenses due to this replacement will also increase by P60,000. Cost of capital is estimated to be 15% and corporate tax of 25% Required: Evaluate…

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	Old Machine	New Machine
Price	$420000	$840000
Accumulated Depreciation	126000	-0-
Remaining useful life	10 years	-0-
Useful life	-0-	10 years
Annual operating costs	$335000	$252000