Santosh Plastics Inc. purchased a new machine one year ago at a cost of $108,000. Although the machine operates well and has five more years of operating life, the president of Santosh Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine costs $162,000 and is expected to slash the current annual operating costs of $75,600 by two-thirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $18,000 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine Less: Salvage value Net loss from disposal $90,000 18,000 $72,000 "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $378,000 per year, and selling and administrative expenses are expected to be $226,800 per year, regardless of which machine is used.

Santosh Plastics Inc. purchased a new machine one year ago at a cost of $108,000. Although the machine operates well and has five more years of operating life, the president of Santosh Plastics is wondering if the company should replace it with a new electronic machine that has just come on the market. The new machine costs $162,000 and is expected to slash the current annual operating costs of $75,600 by two-thirds. The new machine is expected to last for five years, with zero salvage value at the end of five years. The current machine can be sold for $18,000 if the company decides to buy the new machine. The company uses straight-line depreciation. In trying to decide whether to purchase the new machine, the president has prepared the following analysis: Book value of the old machine Less: Salvage value Net loss from disposal $90,000 18,000 $72,000 "Even though the new machine looks good," said the president, "we can't get rid of that old machine if it means taking a huge loss on it. We'll have to use the old machine for at least a few more years." Sales are expected to be $378,000 per year, and selling and administrative expenses are expected to be $226,800 per year, regardless of which machine is used.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Baird Rentals can purchase a van that costs $110,000; it has an expected useful life of five years and no salvage value. Baird uses straight-line depreciation. Expected revenue is $40,425 per year. Assume that depreciation is the only expense associated with this Investment. Required a. Determine the payback period. Note: Round your answer to 1 decimal place. b. Determine the unadjusted rate of return based on the average cost of the investment. Note: Round your answer to 1 decimal place. (l.e., .234 should be entered as 23.4). a. Payback period b. Unadjusted rate of return years %
Stuart Rentals can purchase a van that costs $105,000; it has an expected useful life of three years and no salvage value. Stuart uses straight-line depreciation. Expected revenue is $52,220 per year. Assume that depreciation is the only expense associated with this investment. Required a. Determine the payback period. (Round your answer to 1 decimal place.) b. Determine the unadjusted rate of return based on the average cost of the investment. (Round your answer to 1 decimal place. (i.e., .234 should be entered as 23.4).) a. Payback period years b. Unadjusted rate of return %
Waterways Continuing Problem 12 a Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose its discount rate of 9% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways then uses different methods to determine the best decisions for making capital outlays. This year Waterways is considering buying five new backhoes to replace the backhoes it now has. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes. The following information is available to use in deciding whether to purchase the new backhoes. Old Backhoes New Backhoes Purchase cost when new $88,600 $197,129…
A firm is trying to decide which of two machines to purchase as described in in the table below. Using the interest rate 9% or 0.09, use present worth analysis to determine which machine, if either, should be purchased. Show all your work. Machine: A - B First Cost: $800 - $600 Annual Net Benefit: $130 - $230 Salvage Value: $40 - $20 Usefil Life (years): 9 - 3
Use AstroTurf Company's income statement below to answer the following questions.Operating costs (excl. depreciations & amortization): $4.5mDepreciation and amortization: $1.5mInterest: $0.7mNet Income: $2.8mTax Rate: 35% What level of sales would generate a net income of $4.2m for the following year, knowing that operating costs (excl. depreciation and amortization) will increase by 7.5%, and given a 35% tax rate. Provide a step-by-step explanation for how you arrived at your above solution as though you were teaching a student to solve this type of problem.*
A firm is considering an investment in new equipment that has the following information. Purchase Cost: $123,829 and the equipment will have no salvage value at the end of its five year life. Annual accounting profit is $30,899 Calculate the Accounting Rate of Return, ie the ARR. Express your answer as a percentage with two decimal places
Imagine you have purchased an equipment today for P price. After N years of service you put it on Kijiji to be taken for free. Basedon this scenario, which depreciation model shows 100% depreciation in the first year of the service life of this equipment?Double Declining BalanceSOYDDeclining Balance150% Declining BalanceNone of the given answer
Cadet Inc. is considering the purchase of new equipment that will automate production and thus reduce labor costs. Cadet made the following estimates related to the new machinery: (Click the icon to view the information.) Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Read the requirements. C Requirement 1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return. a. Net present value. (Round intermediary calculations to the nearest whole dollar. Use factors to three decimal places, X.XXX, and use a minus sign or parentheses for a negative net present value. Enter the net present value of the investment rounded to the nearest whole dollar.) The net present value is Requirements 1. Calculate (a) net present value, (b) payback period, (c) discounted payback period, and (d) internal rate of return. 2. Compare and contrast the capital budgeting methods in…
4. The OPM Company is planning to, purchase a machine. A choice is to be made out of two machine A and B, the details of which are given below. Particular Machine A Machine B Capital Cost Net Cash-flow after charging tax Average annual income 90,000 48,000 48,000 90,000 37,500 37,500 The expected serviceable life ofmachine A is 2 years and B 3 years. Sales expected to continue at the above rates for the full serviceable life of machine. The costs relate to annual expenditure to be incurred as a result of machines. Which is the most profitable investment by applying ARR? Return on
Saved Required information [The following information applies to the questions displayed below.] Peng Company is considering an investment expected to generate an average net income after taxes of $2,900 for three years. The investment costs $47,100 and has an estimated $6,600 salvage value. Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation. Accounting Rate of Return Choose Denominator: Accounting Rate of Return %3D Choose Numerator: Accounting rate of return
The following present value factors are provided for use in this problem. Periods Present Valueof $1 at 11% Present Value of anAnnuity of $1 at 11% 1 0.9009 0.9009 2 0.8116 1.7125 3 0.7312 2.4437 4 0.6587 3.1024 Cliff Co. wants to purchase a machine for $62,000, but needs to earn a return of 11%. The expected year-end net cash flows are $24,000 in each of the first three years, and $28,000 in the fourth year. What is the machine's net present value? Multiple Choice $(3,351). $15,093. $77,093. $(43,556). $100,000.
The following are the relevant data of two alternative machines are shown in the table below. Determine which is the better machine if T=40%, a CFAT MARR of 10%, and SL as a depreciation method. What is the depreciation per year? Note: Calculate the CFAT thru tabular method. Use AW for solving.