A machine purchased three years ago for $311,000 has a current book value using straight-line depreciation of $180,000; its operatingexpenses are $39,000 per year. A replacement machine would cost $222,000, have a useful life of nine years, and would require$10,000 per year in operating expenses. It has an expected salvage value of $79,000 after nine years. The current disposal value ofthe old machine is $89,000; if it is kept 9 more years, its residual value would be $17,000.RequiredCalculate the total costs in keeping the old machine and purchasing a new machine. Should the old machine be replaced?Keep Old Purchase NewMachineMachineTotal costsShould the old machine be replaced?

Machinery costs can be classified into two domains Annual ownership costs Operating Costs Annual…

Answered: A machine purchased three years ago for…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
A machine purchased three years ago for $318,000 has a current book value using straight-line depreciation of $192,000; its operating expenses are $39,000 per year. A replacement machine would cost $227,000, have a useful life of nine years, and would require $10,000 per year in operating expenses. It has an expected salvage value of $71,000 after nine years. The current disposal value of the old machine is $81,000; if it is kept 9 more years, its residual value would be $18,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced? Keep Old Machine Total costs Should the old machine be replaced? Purchase New Machine
A machine purchased three years ago for $309,000 has a current book value using straight-line depreciation of $187,000; its operating expenses are $38,000 per year. A replacement machine would cost $235,000, have a useful life of nine years, and would require $8,000 per year in operating expenses. It has an expected salvage value of $64,000 after nine years. The current disposal value of the old machine is $72,000; if it is kept 9 more years, its residual value would be $18,000. Required Calculate the total costs in keeping the old machine and purchase a new machine. Should the old machine be replaced
Benson Enterprises is deciding when to replace its old machine. The machine’s current salvagevalue is $1.2 million. Its current book value is $1 million. If not sold, the old machine will requiremaintenance costs of $420,000 at the end of the year for the next five years. Depreciation on theold machine is $200,000 per year. At the end of five years, it will have a salvage value of $220,000.A replacement machine costs $3.5 million now and requires maintenance costs of $160,000 at theend of each year during its economic life of five years. At the end of five years, the new machinewill have a salvage value of $540,000. It will be fully depreciated using the three-year MACRSschedule. In five years a replacement machine will cost $4,000,000. Pilot will need to purchasethis machine regardless of what choice it makes today. The corporate tax is 35 percent and theappropriate discount rate is 10 percent. The company is assumed to earn sufficient revenues togenerate tax shields from…
Benson Enterprises is deciding when to replace its old machine. The machine’s current salvagevalue is $1.2 million. Its current book value is $1 million. If not sold, the old machine will requiremaintenance costs of $420,000 at the end of the year for the next five years. Depreciation on theold machine is $200,000 per year. At the end of five years, it will have a salvage value of $220,000.A replacement machine costs $3.5 million now and requires maintenance costs of $160,000 at theend of each year during its economic life of five years. At the end of five years, the new machinewill have a salvage value of $540,000. It will be fully depreciated using the three-year MACRSschedule. In five years a replacement machine will cost $4,000,000. Pilot will need to purchasethis machine regardless of what choice it makes today. The corporate tax is 35 percent and theappropriate discount rate is 10 percent. The company is assumed to earn sufficient revenues togenerate tax shields from…
Five years ago, a piece of equipment was purchased at a cost of $170,000, with a salvage value of $20,000 at the end of its 15-year useful life. The equipment currently has a market value of $80,000. In addition, it generates income before depreciation and taxes of $580,000 each. year, with operating costs of $450,000 per year. Consider replacing this equipment with a new one, which has a purchase price of $280,000, $30,000 salvage value at the end of its 10-year useful life, which would raise income before depreciation and taxes to $700,000, with annual operating costs of $510,000. Taxes of 50% are paid and both Equipment is depreciated on a straight line basis. The company's MARR is 19.5%. Determine the economic desirability of replacement. Answer: ΔNPV = −18,391.43. Do not replace
A chemical mixer was purchased 8 years ago for $100,000. If retained, it will require an investment of $50,000 to upgrade it; if upgraded, it will cost $35,000/year to operate and maintain (O&M) and will have a negligible salvage value after 5 years. A new mixer can be purchased for $120,000; it will have an annual O&M cost of $15,000 and a salvage value of $40,000 after 5 years. Alternatively, a mixer can be leased with 5 beginning-of-year lease payments of $20,000; O&M costs will be $18,000/year. If the mixer is replaced, the old mixer can be sold on the used equipment market for $15,000. Using an insider’s approach, what are (a) the EUAC of keeping the current mixer, (b) the EUAC of replacing with a new mixer, and (c) the EUAC of replacing with a leased mixer? The MARR is 10%.
← Daily Enterprises is purchasing a $10.5 million machine. It will cost $55,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. If Daily uses straight-line depreciation, what are the depreciation expenses associated with this machine? The yearly depreciation expenses are $. (Round to the nearest dollar.)
An automated assembly robot that cost $300,000 has a recovery period of five years with an expected $50,000 salvage value. If the MACRS depreciation rates for years 1, 2, and 3 are 20.0%, 32.0%, and 19.2%, respectively, what is the depreciation recapture, capital gain, or capital loss, provided the robot was sold after 3 years for $80,000?
Daily Enterprises is purchasing a $10.0 million machine. It will cost $50,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. If Daily uses straight-line depreciation, what are the depreciation expenses associated with this machine? The yearly depreciation expenses are $ (Round to the nearest dollar.)
Calligraphy Pens is deciding when to replace its old machine. The machine's current salvage value is $3,050,000. Its current book value is $1,800,000. If not sold, the old machine will require maintenance costs of $710,000 at the end of the year for the next five years. Depreciation on the old machine is $360,000 per year. At the end of five years, it will have a salvage value of $155,000 and a book value of $0. A replacement machine costs $4,650,000 now and requires maintenance costs of $380,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $745,000. It will be fully depreciated by the straight-line method. In five years, a replacement machine will cost $3,650,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 25 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to…

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