Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 13, Problem 20P
To determine
To analysis:
Whether to purchase the automated welding machine or not.
Expert Solution
Answer to Problem 20P
Solution:
No, it is not advisable to purchase the automated welding machine.
Explanation of Solution
On the basis of
The net present value of the automated machine will be calculated as under −
The present value of
Given,
- Cost of machine = $ 250,000
- Software and installation = $ 80,000
- Salvage value of old machine = $ 12,000
- Replacement parts cost in year 3 = $ 45,000
| Total Present value of |
||
| Cost of machine | 250,000 | |
| Software and installation | 80,000 | |
| Less: Salvage value of old machine | -12,000 | |
| Present value of replacement of parts | ||
| Replacement parts cost | 45,000 | |
| PVIF @ 16 % for 4 year | 0.552 | 24,840 |
| Total Present value of cash out flows | 342,840 |
The total present value of cash outflows = $ 342,840.
Now, the present value of cash inflows will be calculated as −
Given,
- Annual net savings from year 1 to 6 = $ 78,500
- Salvage value of new machine at the year of year 6 = $ 20,000
| Total present value of Cash Inflows | |||
| Year | PVIF @ 16 % (2) | Present value of |
|
| 1 to 6 | Annual net savings = $ 78,500 | 3.685 | 289,272.50 |
| 6 | Salvage value = $ 20,000 | 0.410 | 8,200 |
| Total present value of Cash Inflows | 297,472.50 |
The present value of cash inflows = $ 297,472.50.
Now, the net present value of automated welding machine will be calculated as under −
Given,
Net present value = Total present value of cash inflows − Total present value of cash outflowsNet present value = $ 297,472.50. − $ 342,840Net present value = - $ 45,367.50
The net present value is = - $ 45,367.50 i.e., negative, so it is not advisable to purchase the automated welding machine.
Note: PVIF values are taken from the charts provided.
Conclusion
Thus, it is not advisable to purchase the automated welding machine.
Requirement 3
To determine
To compute:
Minimum dollar value per year to make the new welding machine as acceptable investment.
Expert Solution
Answer to Problem 20P
Solution:
Minimum dollar value per year to make the new welding machine as acceptable investment = $ 12,311.40
Explanation of Solution
The minimum dollar value per year to make new welding machine as acceptable investment will be calculated as under −
Given,
- Net present Value of welding machine = - $ 45,367.50
- PVAF @ 16 % for 6 years = $ 3.6853
Minimum dollar value per year = Net present Value of welding machine PVAF @ 16 % for 6 yearsMinimum dollar value per year = $ 45,367.50 3.685Minimum dollar value per year =$12,311.40
The machine should provide at least a benefit of $ 12,311.40 per year to make it acceptable.
Conclusion
Thus, the minimum dollar value per year to make the new welding machine as acceptable investment has been calculated.
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Chapter 13 Solutions
Managerial Accounting
Ch. 13.A - Prob. 1ECh. 13.A - Prob. 2ECh. 13.A - Prob. 3ECh. 13.A - Prob. 4ECh. 13.A - Exercises 13A-5 Basic Present Value Concepts...Ch. 13.A - Prob. 6ECh. 13.C - Prob. 1ECh. 13.C - Prob. 2ECh. 13.C - PROBLEM 13C-3 Income Taxes and Net Present Value...Ch. 13.C - Prob. 4P
Ch. 13.C - PROBLEM 13C-5 Income Taxes and Net Present Value...Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Prob. 7QCh. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Prob. 10QCh. 13 - Prob. 11QCh. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - What is the major criticism of the payback and...Ch. 13 -
The Excel worksheet form that appears below is to...Ch. 13 - Prob. 1F15Ch. 13 - Prob. 2F15Ch. 13 - Prob. 3F15Ch. 13 - Prob. 4F15Ch. 13 - Prob. 5F15Ch. 13 - Prob. 6F15Ch. 13 - Prob. 7F15Ch. 13 - Prob. 8F15Ch. 13 - Prob. 9F15Ch. 13 - Prob. 10F15Ch. 13 - (
595.000
)...Ch. 13 - Prob. 12F15Ch. 13 - Prob. 13F15Ch. 13 - Prob. 14F15Ch. 13 - Prob. 15F15Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 -
EXERCISE 13-15 Internal Rateof Return and Net...Ch. 13 - Prob. 16PCh. 13 - PROBLEM 13-17 Net Present Value Analysis; Internal...Ch. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 -
PROBLEM 13-27 Net Present Value Analysis...Ch. 13 - Prob. 28PCh. 13 - Prob. 29PCh. 13 - Prob. 30PCh. 13 - Prob. 31CCh. 13 - Prob. 32C
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