Corporation Is Contemplating To Invest Into A New Equipment Costing 2,500,000 Plus Installation Cost Of 200,000 To Replace Its Old Equipment That Has A Book Value Of 400,000 And A Remaining Useful Life Of 4 Years. The Estimated Useful Life Of The New Equipment Is 4 Years And Has A Salvage Value Of 500,000. If The Company Will Favor The Replacement Decisions, The Old Equipment Can Be Sold For 150,000 But Additional Working Capital Investment Must Be Made Amounting To 400,000. However, The Company Must Incur Repair Cost Of 180,000 To Continuously Use The Old Equipment. Annual Cash Operating Costs Of The Old Equipment Is 4,000,000 While The Annual Cash Operating Cost Of The New Equipment Is 2,400,000. At The End Of The Useful Life, Cost To Remove The New Equipment Will Amount To 100,000. The Company Uses A Tax Rate Of 35%, Requires A Payback Period Is 2.5 Years Qr Less, And Accepts A Minimum Accounting Rate Of Return Is 15% Requirements: 1. Compute For The Net Investment. 2. Compute For The Annual After-Tax Net Cash Inflow.
Corporation Is Contemplating To Invest Into A New Equipment Costing 2,500,000 Plus Installation Cost Of 200,000 To Replace Its Old Equipment That Has A Book Value Of 400,000 And A Remaining Useful Life Of 4 Years. The Estimated Useful Life Of The New Equipment Is 4 Years And Has A Salvage Value Of 500,000. If The Company Will Favor The Replacement Decisions, The Old Equipment Can Be Sold For 150,000 But Additional Working Capital Investment Must Be Made Amounting To 400,000. However, The Company Must Incur Repair Cost Of 180,000 To Continuously Use The Old Equipment. Annual Cash Operating Costs Of The Old Equipment Is 4,000,000 While The Annual Cash Operating Cost Of The New Equipment Is 2,400,000. At The End Of The Useful Life, Cost To Remove The New Equipment Will Amount To 100,000. The Company Uses A Tax Rate Of 35%, Requires A Payback Period Is 2.5 Years Qr Less, And Accepts A Minimum Accounting Rate Of Return Is 15% Requirements: 1. Compute For The Net Investment. 2. Compute For The Annual After-Tax Net Cash Inflow.
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Transcribed Image Text:Corporation Is Contemplating To Invest Into A New Equipment Costing 2,500,000 Plus Installation Cost Of
200,000 To Replace Its Old Equipment That Has A Book Value Of 400,000 And A Remaining Useful Life Of 4
Years. The Estimated Useful Life Of The New Equipment Is 4 Years And Has A Salvage Value Of 500,000. If The
Company Will Favor The Replacement Decisions, The Old Equipment Can Be Sold For 150,000 But Additional
Working Capital Investment Must Be Made Amounting To 400,000. However, The Company Must Incur Repair
Cost Of 180,000 To Continuously Use The Old Equipment. Annual Cash Operating Costs Of The Old Equipment
Is 4,000,000 While The Annual Cash Operating Cost Of The New Equipment Is 2,400,000. At The End Of The
Useful Life, Cost To Remove The New Equipment Will Amount To 100,000. The Company Uses A Tax Rate Of
35%, Requires A Payback Period Is 2.5 Years Qr Less, And Accepts A Minimum Accounting Rate Of Return Is
15%
Requirements:
1. Compute For The Net Investment.
2. Compute For The Annual After-Tax Net Cash Inflow.
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