Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 16, Problem 40P
The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $800. One possible alternative is to invest in new machinery, which has a cost of $39,000. This new machinery would produce estimated annual operating cash savings of $12,500. The estimated useful life of the new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value of $2,000 at the end of four years. The investment in the new machinery would require an additional investment in
If the DOT accepts this investment proposal, disposal of the old machinery and investment in the new equipment will take place on December 31, 20x1. The
Required: Prepare a net-present-value analysis of the county DOT’s machinery replacement decision. The county has a 10 percent hurdle rate.
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Freida Company is considering an asset replacement project ofreplacing a control device. This old control device has been fullydepreciated but can be sold for $5,000. The new control device, whichis more automated, will cost $42,000. The new device’s installation andshipping costs will total $16,000. The new device will be depreciatedon a straight-line basis over its 2-year economic life to an estimatedsalvage value of $0. The actual salvage value of this device at the endof 2-year period (That is, the market value of the device at the end of2-year period) is estimated to be $4,000. If the replacement project is
accepted, Freida will require an initial working capital investment of$2,200 (that is, adding $2,200 initially to its net working capital).During the 1st year of operations, Freida expects its annual revenue toincrease from $72,800 to $90,000. After the 1st year, revenues fromthe replacement are expected to increase at a rate of $2,800 a year forthe remainder of the project…
The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery
has zero book value but its current market value is $820. One possible alternative is to invest in new machinery, which has a cost of
$39,200. This new machinery would produce estimated annual operating cash savings of $12,600. The estimated useful life of the
new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value of $2,020 at
the end of four years. The investment in the new machinery would require an additional investment in working capital of $3,000, which
would be recovered after four years.
If the DOT accepts this investment proposal, disposal of the old machinery and investment in the new equipment will take place on
December 31, 20x1. The cash flows from the investment will occur during the calendar years 20x2 through 20x5.
Use Appendix A for your reference.
Note: Use appropriate factor(s)…
"The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $800. One possible alternative is to invest in new machinery, which has a cost of $39,000. This new machinery would pro-duce estimated annual operating cash savings of $12,500. The estimated useful life of the new machin-ery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value of $2,000 at the end of four years. The investment in the new machinery would require an addi-tional investment in working capital of $3,000, which would be recovered after four years.If the DOT accepts this investment proposal, disposal of the old machinery and investment in the new equipment will take place on December 31, 20x1. The cash flows from the investment will occur during the calendar years 20x2 through 20x5.
Required:
Prepare a net-present-value analysis…
Chapter 16 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Explain the following terms: recovery of...Ch. 16 - List and briefly explain two advantages that the...Ch. 16 - List and briefly explain four assumptions...Ch. 16 - Prob. 9RQCh. 16 - Prob. 10RQ
Ch. 16 - Give an example of a noncash expense. What impact...Ch. 16 - Prob. 12RQCh. 16 - What is a depreciation tax shield? Explain the...Ch. 16 - Prob. 14RQCh. 16 - Why is accelerated depreciation advantageous to a...Ch. 16 - Prob. 16RQCh. 16 - Why may the net-present-value and...Ch. 16 - Prob. 18RQCh. 16 - What is meant by the term payback period? How is...Ch. 16 - Prob. 20RQCh. 16 - How is an investment projects accounting rate of...Ch. 16 - Prob. 22RQCh. 16 - Prob. 23RQCh. 16 - Prob. 24ECh. 16 - Refer to the data given in the preceding exercise....Ch. 16 - Prob. 26ECh. 16 - Prob. 28ECh. 16 - Prob. 29ECh. 16 - Prob. 30ECh. 16 - Prob. 31ECh. 16 - Prob. 32ECh. 16 - Sharpe Machining Company purchased industrial...Ch. 16 - The owner of Atlantic City Confectionary is...Ch. 16 - The management of Niagra National Bank is...Ch. 16 - Allegience Insurance Companys management is...Ch. 16 - Prob. 37ECh. 16 - Prob. 38ECh. 16 - The states Secretary of Education is considering...Ch. 16 - The supervisor of the county Department of...Ch. 16 - Prob. 41PCh. 16 - Prob. 42PCh. 16 - Prob. 43PCh. 16 - Special People Industries (SPI) is a nonprofit...Ch. 16 - Washington Countys Board of Representatives is...Ch. 16 - Prob. 46PCh. 16 - Prob. 47PCh. 16 - Mind Challenge, Inc. publishes innovative science...Ch. 16 - Philadelphia Fastener Corporation manufactures...Ch. 16 - Prob. 50PCh. 16 - Prob. 51PCh. 16 - Prob. 52PCh. 16 - Prob. 53PCh. 16 - Prob. 54PCh. 16 - Prob. 55PCh. 16 - Prob. 56PCh. 16 - Pensacola Cablevision Company provides television...Ch. 16 - Pensacola Cablevision Company provides television...Ch. 16 - The board of education for the Central Catskill...Ch. 16 - Prob. 60C
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