Reacher Corporation is evaluating a proposal to purchase a new machine that wouldcost $100,000 and would have a salvage value of $12,000 in 4 years. It wouldprovide annual savings of $10,000 as noted below.Direct materialsDirect labourShare of allocated overheadOld Machine$40,000New Machine$36,0007,0005,0009,0005,000$56,000$46,000Total CostsIf the new machine is purchased, the old machine will be sold for its current salvagevalue of $20,000 whereas if the new machine is not purchased, the old machine willbe disposed of in 4 years at a predicted salvage value of $2,000.The old machine has a present book value of $40,000. If kept, in one year the oldmachine will require estimated repairs of $25,000. The firms cost of capital is 10%.Present value factors at 10% are provided below.Year PV of $1 PV of Annuity of $11 0.9090.90920.8261.73630.7512.4870.6833.170Required: Showing all relevant calculations in good presentation form, should themachine be purchased. Why or why not?

To further understand the decision-making process, let's go over the computations in more detail.…

Answered: Reacher Corporation is evaluating a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

See similar textbooks

Similar questions

Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.
Dunder Mifflin Paper Company is considering the following two alternatives. The cost information for the two proposals for replacing an equipment are provided are in table below. Machine A Machine B Initial cost $120,000 $96,000 $20,000 for the first 10 years $12,000 per year for 20 Benefits/year and $9,000 for the next 10 years. years Life 20 years for both Salvage value $40,000 $20,000 interest 8% per year for both The NPW of machine A is Choose the closest answer.
Dexcon Technologies, Inc., is evaluating two alternatives to produce its new plastic filament with tribological (i.e., low friction) properties for creating custom bearings for 3-D printers. The estimates associated with each alternative are shown below. Using a MARR of 9% per year, which alternative should be selected? Method First Cost M&O Cost, per Year Salvage Value Life DDM $-100,000 $-30,000 $2,000 3 years LS $-300,000 $-5,000 $15,000 6 years
The AW method is to be used to select the better alternative of the two machines listed below, at 10% per year. Answer the below questions: Machine R Machine S First cost, $ 250,000 497,732 Annual operating cost, $ per year 40,000 50,000 Salvage value, $ Life, years 20,000 30,000 3. 5. The AW of Machine S=
The following annual costs are associated with three new extruder machines being considered for use in a Styrofoam cup plant: Data Useful Life, Years First Cost Salvage Value Annual Benefit M&O M&O Gradient X 17 $2,090,000 $87,000 $396,000 $56,000 $9,000 X-TRUD 13 $2,610,000 $93,000 $534,000 $60,000 $11,000 SUPR-X 11 $2,430,000 $119,000 $638,000 $53,000 $13,000 The company's interest rate (MARR) is 21%. Which extruder should the Styrofoam company choose? Use Annual Cash Flow Analysis and provide the right reason. Choosing SUPR-X is best because it has the lowest M&O cost in yr1 Choosing SUPR-X is best because it has the highest Annual Benefit Choosing SUPR-X will maximize the EUAB-EAUC; its value is $-127,486 higher than X and $15,650 higher than X-TRUD. Choosing SUPR-X will maximize the EUAB-EAUC; its value is $117,514 higher than X and $126,650 higher than X-TRUD.
I need help filling out the empty fields. Can you please include the formulas: Laurman, Incorporated is considering the following project: Required investment in equipment $2,205,000 Project life 7 Salvage value 225,000 The project would provide net operating income each year as follows: Sales $2,750,000 Variable expenses 1,600,000 Contribution margin $1,150,000 Fixed expenses: Salaries, rent and other fixed out-of pocket costs $520,000 Depreciation 350,000 Total fixed expenses 870,000 Net operating income $280,000 Company discount rate 18% Required: (Use cells A4 to C18 from the given information, as well as B24, and A30 to D46 to complete this question. Negative amounts or amounts to be deducted should be input as negative values and will display in…
A factory is considering partially automating one of its production processes, details can be found in the summary table below (all dollars are constant and have the value of today) Investment = $1 500 000 Project life = 5 years Salvage value = $500 000 CCA rate = 30% Annual savings = $1 000 000 Annual Expenses (per year): Labour = $200 000, Material = $125 000, Overhead = $75 000 Marginal Tax rate = 40% Real interest rate = 15% A) Ignoring effects of inflation (for part a only), what's the after tax NPW B) If the general inflation rate during the next 5 years is expected to be 6% annually, sales and operating costs are increased accordingly. What would the NPW be due to inflation? C) How did the NPW change and why?
Reference: Case Study S Dunn Manufacturing is considering the following two alternatives. The cost information for the two proposals for replacing an equipment are provided are in table below. Initial cost Benefits/year Machine X $120,000 $20,000 for the first 10 years and $9,000 for the next 10 years Life Salvage value $40,000 MARR 5.2. The NPW of machine X is A) $35,158 B) $48,192 C) $50,752 Machine Y $96,000 $12,000 per year for 20 years. 20 years 8% $20,000
Seong Seng Coachbuilders is considering purchasing a new machine to replace an old one. Cost of new machine: Purchase price $85,000 Installation & Commissioning $10,000 The proposed new machine is to be depreciated using the straight line method over its four-year useful life with an estimated salvage value of $15,000. The proposed new machine is expected to increase sales and operating expenses and the amount are expected to be constant over the project’s 4 year life. Sales $65,000 Operating expenses $26,000 Seong Seng operating working capital is also expected to increase as follows: Inventory $12,000 Accounts receivable $8,000 Accruals $3,000 Accounts payable $6,000 The old, existing machine is also being depreciated using the straight line method over its 6 years useful life towards zero salvage. It was purchased…
A machine costing $30,000 to buy and $2,500 per year to operate. It will save S8,390 in annual labor packaging expenses over Six years. The anticipated salvage value of the machine at the end of six years is $6.000. This investment is has IRR= and Simple, 9% Simple, 11% O Non-simple, we cannot find its IRR. O Simple, 13%
Seong Seng coachbuilders is considering purchasing a new machine to replace an old one. Cost of new machine. Purchase price $85,000 Installation & commissioning $10,000 The proposed new machine is to be depreciated using the straight- line method over its four year useful life with an estimated salvage value of $15,000. The proposed new machine is expected to increase sales and operating expenses and the amount is expected to be constant over the project’s 4 year life. Sales $65,000 Operating expenses $26,000 Seong Seng operating working capital is also expected to increase as follows: Inventory $12,000 Account receivable $8,000 Accounts $3,000 Account payable $6,000 The old, existing machine is also being depreciated using the straight-line method over its 6years of useful life towards zero salvage. It was purchased 2 years…

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

SEE MORE TEXTBOOKS