RaSubject - Accounting View PoliciesCurrent Attempt in ProgressTamarisk Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. Thefollowing information has been collected on this investment:CostOld EquipmentAccumulated depreciationRemaining lifeCurrent salvage valueSalvage value in 8 yearsAnnual cash operating costs(a)$80,400$40,5008 years$10.280Cash payback period$0eTextbook and MediaSave for Later$35,800CostNew EquipmentDepreciation is $10,050 per year for the old equipment. The straight-line depreciation method would be used for the new equipmentover an eight-year period with salvage value of $4,800.Estimated useful lifeSalvage value in 8 yearsAnnual cash operating costsDetermine the cash payback period. (Ignore income taxes) (Round answer to 3 decimal places, eg 15.275)$40,8008 years$4,800$29,600yearsAttempts: 0 of 3 used Submit Answer

Cost of New machine $40,800 Salvage value of old machine $10,280 Annual cash operating cost of…

Answered: Tamarisk Inc. is considering…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.15E

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Current Attempt in Progress Sheridan 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 $80,000 $40,000 8 years $9,800 Annual rate of return $0 eTextbook and Media $35,000 Your answer is incorrect. Cost New Equipment Estimated useful life Salvage value in 8 years Annual cash operating costs Depreciation is $10,000 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value of $4,400. Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.) $39,000 % 8 years $4,400 $29,000 Save for Later Last saved 2 days ago. Saved work will be auto-submitted on the due date. Auto- submission can take up to 10 minutes. Using…
nitial investment—Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 2 years ago at an installed cost of $19,800; it was being depreciated under MACRS using a 5-year recovery period. (See table LOADING... for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,900 and requires $4,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,700 without incurring any removal or cleanup costs. The firm is subject to a 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine. Data table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation…
Current Attempt in Progress Sandhill Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided here. Original cost Estimated life Salvage value Estimated annual cash inflows Estimated annual cash outflows Net present value Profitability index Machine A $77,300 8 years 0 Click here to view the factor table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to O decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Which machine should be purchased? eTextbook and Media Save for Later $20,200 $4,970 Machine A…
Sensitivity analysis: San Lucas Corporation San Lucas Corporation is considering investment in robotic machinery based upon the following estimates: Cost of robotic machinery $4,000,000 Residual value 300,000 Useful life 10 years a. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $700,000. Use the present value tables appearing in Exhibit 2 and 5 of this chapter. Net present value $ b. Determine the net present value of the equipment, assuming a desired rate of return of 10% and annual net cash flows of $500,000, $700,000, and $900,000. Use the present value tables (Exhibit 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $500,000 $700,000 $900,000 Net present value $ $ $ c. Determine the minimum annual net cash flow necessary to generate a positive net present value, assuming a desired rate…
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Terminal cash flow—Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $200,000 and will require $29,100 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table LOADING... for the applicable depreciation percentages). A $29,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,400 before taxes; the new machine at the end of 4 years will be worth $74,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 40% tax rate
Current Attempt in Progress Cullumber Partners is evaluating the replacement of an older machine with either the new SuperPlus or MaxPlus machine. The market value of the original machine is $8,000 but it has an expected salvage value of $1,000 in 5 years. The details regarding the two new machines are as follows: Reduced Annual Pretax Machine Cost Useful Life Salvage Value Operating Cash Flows SuperPlus MaxPlus $25,000 5 years $2,000 $5,700 $38,000 5 years $3,000 $5,900 The company's tax rate is 40% and the machines are Class 10 assets with a 30% CCA rate. The company's required return is 11%. Estimate the NPV of replacement. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round intermediate and final answers to O decimal places, e.g., 2,345.) NPV of SuperPLUS $ NPV of MaxPLUS $
Question Completion Status: The XYZ Company is considering investing in two alternative projects: Project 1 W $400,000 5 B. C. D. Investment Useful life (years) Estimated annual net cash inflows for useful life Residual value Depreciation method Required rate of return What is the payback period for Project 2? 16.00 years 4.00 years 5.00 years 4.70 years $100,000 $25,000 Straight- line 12% Project 2 $250,000 6 $50,000 $15,000 Straight- line 8%
Sensitivity analysis: Boulder Creek Industries Boulder Creek Industries is considering an investment in equipment based on the following estimates: Line Item Description Value Cost of equipment $3,000,000 Residual value $200,000 Useful life 10 years a. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $800,000. Use the present value tables appearing in Exhibits 2 and 5 of this chapter.Net present value fill in the blank 1 of 1$ b. Determine the net present value of the equipment, assuming a desired rate of return of 12% and annual net cash flows of $400,000, $600,000, and $800,000. Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. If required, use the minus sign to indicate a negative net present value. Annual Net Cash Flow $400,000 $600,000 $800,000 Net present value $fill in the blank 2 $fill in the blank 3 $fill in the blank 4 c. Determine the…
Required information Use the following information for the Quick Study below. [The following information applies to the questions displayed below.] Project A requires a $380,000 initial investment for new machinery with a five-year life and a salvage value of $39,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $23,000 per year for the next five years. QS 25-6 Accounting rate of return LO P2 Compute Project A's accounting rate of return. Accounting Rate of Return Choose Numerator: Choose Denominator: = Accounting Rate of Return Accounting rate of return
Terminal cash flow-Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $192,000 and will require $29,900 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $25,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $16,800 before taxes; the new machine at the end of 4 years will be worth $70,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 40% tax rate.
Terminal cash flow-Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $192,000 and will require $30,200 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table E for the applicable depreciation percentages). A $30,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,200 before taxes; the new machine at the end of 4 years will be worth $80,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 40% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the…

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