Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,620,000; the new one will cost, $1,949,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $405,000 after five years. The old computer is being depreciated at a rate of $336,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $531,000; in two years, it will probably be worth $153,000. The new machine will save us $363,000 per year in operating costs. The tax rate is 23 percent, and the discount rate is 10 percent. a-1. Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,620,000; the new one will cost, $1,949,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $405,000 after five years. The old computer is being depreciated at a rate of $336,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $531,000; in two years, it will probably be worth $153,000. The new machine will save us $363,000 per year in operating costs. The tax rate is 23 percent, and the discount rate is 10 percent. a-1. Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 28P: Friedman Company is considering installing a new IT system. The cost of the new system is estimated...

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
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Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,660,000; the new one will cost, $2,001,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $435,000 after five years. The old computer is being depreciated at a rate of $352,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $549,000; in two years, it will probably be worth $159,000. The new machine will save us $373,000 per year in operating costs. The tax rate is 25 percent, and the discount rate is 12 percent. a-1. Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to replace the computer now? (A negative answer should…
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Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,330,000; the new one will cost $1,590,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $330,000 after five years. The old computer is being depreciated at a rate of $ 266,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $450,000; in two years, it will probably be worth $123,000. The new machine will save us $293,000 per year in operating costs. The tax rate is 23 percent and the discount rate is 12 percent. Calculate the EAC for the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e .g., 32.16.) What is the NPV of the decision to replace the computer now? (A negative answer should be indicated…
give me the right answer only ASAP Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1.4 million; the new one will cost $1.7 million. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $325,000 after five years. The old computer is being depreciated at a rate of $281,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $450,000; in two years, it will probably be worth $130,000. The new machine will save us $315,000 per year in operating costs. The tax rate is 22 percent, and the discount rate is 12 percent. a-1. Calculate the EAC for the old and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to…
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Tyrell Corp. is considering replacing a machine. The old one is currently being depreciated at $70,000 per year (straight-line), and is scheduled to end in five years with no remaining book value. If you don't replace it, you will be lucky to get it removed for the amount you could salvage it for, so you don't expect any profit in five years. If you replace the old machine now, you believe you can salvage it for $375,000 and buy a new machine for $850,000, plus $25,000 shipping fee and another $25,000 for installation. The new machine will not change the revenue or NOWC, but it will reduce the operating costs of the company by $145,000 per year. The new machine will be depreciated using the three-year MACRS schedule (the table is provided on the Moodle for your convenience). The useful life of this machine is five years, and it is expected that the machine can be sold at $20,000 at the end of the five years. Assume a tax rate of 25% and the cost of capital for the company is 8%.…
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $340,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $50,000 per year to operate and maintain, but would save $95,000 per year in labor and other costs. The old machine can be sold now for scrap for $30,000. The simple rate of return on the new machine is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)
Mitchell, Inc. is considering investment in a machine to produce computer keyboards.  The price of the machine is $400,000 and its economic life is ten years.  The machine will be depreciated to a value of zero over the ten-year period.  The total size of the market is 1,000,000 keyboards per year. You can capture 1% of the market share each year.  The price of the keyboards is $40 in the first year.  You will incur fixed costs of $80,000 per year. The variable cost per unit of the keyboard is $20.  The corporate tax rate is 34%.  The discount rate is 15 percent. Estimate the total cash flows and find out the NPV, IRR, and PI of this project.
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