Novak Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. T following information has been collected on this investment: Cost Old Equipment Accumulated depreciation Remaining life Current salvage value Salvage value in 8 years Annual cash operating costs (a) $80,800 $40,400 8 years $10,440 $0 $36,000 Cost New Equipment Estimated useful life Salvage value in 8 years Annual cash operating costs $38,600 8 years $4,600 $30,200 Depreciation is $10,100 per year for the old equipment. The straight-line depreciation method would be used for the new equ over an eight-year period with salvage value of $4,600. Determine the cash payback period. (Ignore income taxes.) (Round answer to 3 decimal places, eg. 15.275.)
Novak Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. T following information has been collected on this investment: Cost Old Equipment Accumulated depreciation Remaining life Current salvage value Salvage value in 8 years Annual cash operating costs (a) $80,800 $40,400 8 years $10,440 $0 $36,000 Cost New Equipment Estimated useful life Salvage value in 8 years Annual cash operating costs $38,600 8 years $4,600 $30,200 Depreciation is $10,100 per year for the old equipment. The straight-line depreciation method would be used for the new equ over an eight-year period with salvage value of $4,600. Determine the cash payback period. (Ignore income taxes.) (Round answer to 3 decimal places, eg. 15.275.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Novak Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The
following information has been collected on this investment:
Cost
Old Equipment
Accumulated depreciation
Remaining life
Current salvage value
Salvage value in 8 years
Annual cash operating costs
(a)
$80,800
$40.400
Cash payback period
8 years
$10,440
$0
$36,000
Cost
New Equipment
Estimated useful life
Salvage value in 8 years
Annual cash operating costs
$38.600
8 years
Depreciation is $10,100 per year for the old equipment. The straight-line depreciation method would be used for the new equipmen
over an eight-year period with salvage value of $4,600.
years
$4,600
$30,200
Determine the cash payback period. (Ignore income taxes.) (Round answer to 3 decimal places, e.g. 15.275.)
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