FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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- Problem 1: You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $80 initially, and then $125 per year in maintenance costs. Machine B costs $150 initially, has a life of three years, and requires $100 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 12 percent, and the tax rate is zero.arrow_forwardPlease correct answer and step by step solutionarrow_forwardExplansion Project: ABC is planning to buy a new heavy duty printing machine. You were hired to assist KFUPM on this decision. So you gathered the following information. The new machine has a life of 3 years. New Machine: Life of machine: 3 years The cost of the new machine is SAR 1,134 The machine will increase the gross profit every year by SAR 314 The market value of the machine when sold at the end of its life is SAR 191 If replaced, then the net working capital (NOWC) will increase every year by SAR 22 ABC will recover all investments in working capital at the end of the new machine's life (after 3 years). WACC is 9.49% Tax rate is 40% ABC uses straight-line Depreciation. Calculate the follwoing: Notes: 1. Use 2 Decimalsarrow_forward
- NEED help with this Questionarrow_forwardThe production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines, each with an estimated life of 10 years. Which machine offers the best internal rate of return? Annual net cash flows Average investment Machine A only Machine B only Machine C only O Machines A and B Machine A $ 50,000 250,000 Machine B $ 40,000 300,000 Machine $ 75,000 500,000arrow_forwardPROBLEM 1. New Project You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $44,000 per year. The marginal tax rate is 35%, and the WACC is 12%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine. What are the project's annual net cash flows during Years 0 through 3?arrow_forward
- Need help with this please explain step by step how u get the solutionarrow_forwardrarrow_forwardQUESTION 3 You are considering starting a new factory producing small electric heaters. Each unit will sell at a price of $55. The production cost of each heater is $35. You are expecting to sell 9000 units per year. This project has an economic life of 6 years. The project requires an investment of $700000 in plants and equipment. This equipment will be depreciated to zero salvage value based on 5-year MACRS schedule. The depreciation rates from year 1 to 6 are 20 % ,32 %, 19.2 %, 11.52 %, 11.52 %, and 5.76 percent, respectively. The company will sell its old equipment for $100,000. The old machine is fully depreciated. The required rate of return for the project is 12 percent, the working capital requirement is 10 percent of the next year's sales revenue. The marginal corporate tax rate is 20 percent. At the termination of the project, the plant and equipment will be sold for an estimated value of $50000. Based on these assumptions, estimate the cash flow for capital expenditures.…arrow_forward
- ssarrow_forward2. A construction company must replace a piece of heavy earth-moving equipment. Cat and Volvo are the two best alternatives. Both alternatives are expected to last 8 years. If the company has a minimum attractive rate of return (MARR) of 11%, which alternative should be chosen? Use IRR analysis. Cat Volvo First cost $15,000 $22,500 Annual operating cost Salvage value 3,000 1,500 2,000 4,000arrow_forwardA cookie factory needs a new cookie machine. They have narrowed their choices to the following machines: a Cost $18000 25000 15000 Annual net savings 1055 2125 1020 IRR 7% 9% 8% Each machine has a 25-year useful life with no salvage value. If the MARR for this factory is 10%, which alternative should be chosen? (Incremental IRR analysis method is required)arrow_forward
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