c. Clearly show the cash flow profile for each alternative using an opportunity cost approach (outsider's viewpoint approach). Provide cash flow for year t=0, 3 and 5. Machine NC & S t Cash flow 0 1 2 $ $ $ 3 $ 285000 $ 0 LA 0 LA $ $ LA 87000 $ Machine L Cash flow 1000 480000 78000
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- Four years ago, the Westin Company purchased a semi-automated machine with an installed cost of $80,000. It has an estimated life of 8 years from the time of purchase and is being depreciated using a straight-line method towards zero salvage value. This existing machine can be sold today for $10,000.A new, fully automated machine can be purchased for $100,000 and another $20,000 is required to have the machine installed and commissioned. It has a 4-year life and is expected to reduce operating expenses by $60,000 each year. Sales are not expected to change. Theproposed new machine after 4 years, is expected to have an estimated salvage value of $20,000. The straight-line depreciation method is also being used for the proposed new machine.If the proposed new machine is accepted, it is expected that net operating working capital would increase by $10,000. This investment would be fully recovered at the end of the project’s life. The company's cost of capital is 15% and its tax rate is…Five years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complexparts used in commercial and military aircraft worldwide. It cost $350,000, had an estimated life of 15 years,and O&M costs of $50,000 per year. It was originally thought to have a salvage value of $20,000 at the end of15 years but is now believed to have a remaining life of 5 years with no salvage value at that time. With businessbooming, the existing machine is no longer sufficient to meet production needs. It can be kept andsupplemented by purchasing a new, smaller Machine S for $210,000 that will cost $37,000 per year forO&M, have a life of 10 years, and a salvage value of $210,000(0.8t ) after t years. As an alternative, a larger,faster, and more capable Machine L can be used alone to replace the current machine. It has a cash pricewithout trade-in of $450,000, O&M costs of $74,000 per year, a salvage value of $450,000(0.8t) after t years,and a 15-year life. The…Five years ago, a multi-axis NC machine was purchased for the express purpose of machining large, complex parts used in commercial and military aircraft worldwide. It cost $350,000, had an estimated life of 15 years, and O&M costs of $50,000 per year. It was originally thought to have a salvage value of $20,000 at the end of 15 years but is now believed to have a remaining life of 5 years with no salvage value at that time. With business booming, the existing machine is no longer sufficient to meet production needs. It can be kept and supplemented by purchasing a new, smaller Machine S for $210,000 that will cost $37,000 per year for O&M, have a life of 10 years, and a salvage value of $210,000(0.8t) after t years. As an alternative, a larger, faster, and more capable Machine L can be used alone to replace the current machine. It has a cash price without trade-in of $450,000, O&M costs of $74,000 per year, a salvage value of $450,000(0.8t) after t years, and a 15-year life.…
- Your firm is replacing a manually-operated machine with a fully automated machine. The old machine was purchased 5 years ago, had an original depreciable value of $140,000, and is depreciable using simplified straight-line for 10 years. The old machine has maintenance and defects costs totaling $9,000 per year. The current salvage value of the old machine is $12,000. The new machine costs $80,000 with shipping costs of $2,000. The new machine would be depreciated over 5 years using simplified straight line, and would have no salvage value after the fifth year. The new machine would have maintenance and defects costs totaling $4,000 per year. The tax rate is 21%. What is the annual cash flow for years 1 through 5 (not including the terminal cash flow) if the project is undertaken?ASAP!! The Zubair Equipment Company purchased a machine 4 years ago at a cost of $250,000. It had an expected life of 7 years at the time of purchase and an expected salvage value of $40,000 at the end of the 7 years. It is being depreciated by the straight line method toward a salvage value of $40,000. A new machine can be purchased for $650,000, including installation costs. Over its 5 year life, it will reduce cash operating expenses by $70,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. Straight line method of depreciation will be used with no salvage value. The old machine can be sold today for $55,000. The firm’s tax rate is 35 percent. The appropriate discount rate is 13 percent. Required: What are the Payback period, profitability index and NPV of this project? Should the firm replace the old machine?A critical machine in BHP Billiton’s copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if “scavenged” for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year. Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $−47,000 over its ESL. Use a MARR of 10% per year and annual worth analysis to determine when the company should replace the machine. The AW value of the challenger is $− and the AW value of the defender at the end of year 2 is $− . The company should replace the machine ___________ after two years now .
- Atlantic Control Company purchased a machine 2 years ago at a cost of $70,000. The machine is being depreciated using simplified straight-line over its 7-year class life. The machine would have no salvage value at the end of year 7, but could be sold now for $40,000.A new replacement machine can be purchased for $80,000. The new machine would be depreciated over 5 years. Rapidly changing technology has necessitated this project. Delivery and installation charges will amount to $10,000 and net working capital investment of $5,000 will be required at installation. The new machine will not increase sales, but will reduce operating costs by $20,000 per year. The firm's tax rate is 21%. What is the initial outlay for the project?The Telephone Company of America purchased a numerically controlled production machine 5 years ago for $300,000. The machine currently has a trade-in value of $70,000. If the machine is continued in use, another machine, X, must be purchased to supplement the old machine. Machine X costs $200,000, has annual operating and maintenance costs of $40,000, and will have a salvage value of $30,000 in 10 years. If the old machine is retained, it will have annual operating and maintenance costs of $55,000 and will have a salvage value of $15,000 in 10 years. As an alternative to retaining the old machine, it can be replaced with Machine Y. Machine Y costs $400,000, has anticipated annual operating and maintenance costs of $70,000, and has a salvage value of $140,000 in 10 years. Using a MARR of 15%, a cash flow approach, and a present worth comparison, determine the preferred economic alternative.A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year. Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-51,000 over its ESL. Use a MARR of 10% per year and annual worth analysis to determine when the company should replace the machine. The AW value of the challenger is $- ◻ ◻ and the AW value of the defender at the end of year 2 is $- 82,834.71 ◻ The company should replace the machine ◻ after two years A critical machine in BHP Billiton's copper refining operation was…
- A CNC machine was purchased 2 years ago for $16,000; now it has been depreciated by straight line depreciation using a 4-year life and zero savage value. Because of recent innovation in the machining technology the current price of the machine has been reduced to $12,000. Market value of the used old machine is $3,000. Considering the replacement analysis what should be the value of the machine, justify your findings on a report with references. This provides evidence for [CLO 2]Metlock Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $121,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $43.500. The new equipment can be bought for $173,440, including installation. Over its 10-year life, it will reduce operating expenses from $190,600 to $148,700 for the first six years, and from $202,600 to $191,800 for the last four years. Net working capital requirements will also increase by $20,900 at the time of replacement. It is estimated that the company can sell the new equipment for $24,100 at the end of its life. Since the new equipment's cash flows are relatively certain, the project's cost of capital is set at 10%, compared with 15% for an average-risk project. The firm's maximum acceptable payback period is 5 years.…Dell is considering replacing one of its material handling systems. The old system was purchased 7 years agofor $130,000 and was depreciated as MACRS-GDS 5-year property since the system is used in the manufactureof electronic components. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and anestimated salvage value of $6,000 at that time. A new system can be purchased for $175,000. It will be worth$50,000 in 8 years, and it will have annual O&M costs of only $17,000 per year due to new technology. If thenew system is purchased, the old system will be traded in for $55,000, even though the old system can be sold536 CHAPTER 11 / REPLACEMENT ANALYSISfor only $45,000 on the open market. Leasing a new system will cost $31,000 per year, payable at the beginningof the year, plus operating costs of $15,000 per year payable at year-end. If the new system is leased, theexisting material handling system will be sold for its market value of $45,000.Use an…