Differential AnalysisContinue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)April 29ContinueReplaceDifferentialwith OldOldEffectsMachineMachine(Alternative 2)(Alternative 1) (Alternative 2)Revenues:Proceeds from sale of old machineCosts:Purchase priceVariable production costs (8 years)Profit (loss)Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.b. What is the sunk cost in this situation?The sunk cost is $ Machine Replacement DecisionA company is considering replacing an old piece of machinery, which cost $168,000 and has $88,000 of accumulated depreciation to date, with a newmachine that has a purchase price of $107,900. The old machine could be sold for $90,100. The annual variable production costs associated with the oldmachine are estimated to be $11,200 per year for 8 years. The annual variable production costs for the new machine are estimated to be $8,000 peryear for 8 years.a. Prepare a differential analysis dated April 29 to determine whether to Continue with Old Machine (Alternative 1) or Replace old Machine (Alternative2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Solution: Introduction: The given question is based on the relevant costs on continuing or…

April 29 Continue Replace old Differential with Old Effects Machine Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable production costs (8 years) Profit (loss) etermine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. What is the sunk cost in this situation? he sunk cost is $

April 29 Continue Replace old Differential with Old Effects Machine Machine (Alternative 2) (Alternative 1) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable production costs (8 years) Profit (loss) etermine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. What is the sunk cost in this situation? he sunk cost is $

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

Although the Chen Company’s milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The project cost of capital is 10%, and its marginal tax rate is 25%. Should Chen buy the new machine?
Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.
Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
A company is considering replacing an old piece of machinery, which cost $599,900 and has $350,600 of accumulated depreciation to date, with a new machine that has a purchase price of $486,600. The old machine could be sold for $63,700. The annual variable production costs associated with the old machine are estimated to be $157,900 per year for eight years. The annual variable production costs for the new machine are estimated to be $102,500 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) April 29 Continue Replace Differential with Old Old Effect Machine Machine on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old…
A company is considering replacing an old piece of machinery, which cost $601,500 and has $349,900 of accumulated depreciation to date, with a new machine that has a purchase price of $485,300. The old machine could be sold for $63,400. The annual variable production costs associated with the old machine are estimated to be $158,100 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,100 per year for 8 years. Question Content Area a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineDecember 10 Line Item Description Continue withOld Machine(Alternative 1) Replace Old Machine(Alternative 2) Differential Effects(Alternative 2) Revenues: Proceeds from sale of old…
Machine replacement decisionA company is considering replacing an old piece of machinery, whichcost $400,000 and has $175,000 of accumulated depreciation to date, witha new machine that has a purchase price of $550,000. The old machinecould be sold for $250,000. The annual variable production costsassociated with the old machine are estimated to be $72,500 per year foreight years. The annual variable production costs for the new machineare estimated to be $24,000 per year for eight years.a. Prepare a differential analysis dated May 29 to determinewhether to continue with (Alternative 1) or replace (Alternative 2)the old machine.b. What is the sunk cost in this situation?
A company is considering replacing an old piece of machinery, which cost $598,900 and has $352,300 of accumulated depreciation to date, with a new machine that has a purchase price of $483,400. The old machine could be sold for $61,000. The annual variable production costs associated with the old machine are estimated to be $156,500 per year for 8 years. The annual variable production costs for the new machine are estimated to be $100,700 per year for 8 years. Question Content Area a.1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential AnalysisContinue with (Alt. 1) or Replace (Alt. 2) Old MachineDecember 10 Line Item Description Continue withOld Machine(Alternative 1) Replace Old Machine(Alternative 2) Differential Effects(Alternative 2) Revenues: Proceeds from sale of old…
A company is considering replacing an old piece of machinery, which cost $602,100 and has $351,100 of accumulated depreciation to date, with a new machine that has a purchase price of $483,800. The old machine could be sold for $63,300. The annual variable production costs associated with the old machine are estimated to be $155,200 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,200 per year for eight years. a.1 Prepare a differential analysis dated May 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffects(Alternative 2) Revenues: Proceeds from sale of old machine $ $ $ Costs:…
A company is considering replacing an old piece of machinery, which cost $598,100 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $484,000. The old machine could be sold for $61,000. The annual variable production costs associated with the old machine are estimated to be $155,500 per year for 8 years. The annual variable production costs for the new machine are estimated to be $98,800 per year for 8 years. a-1 Prepare a differential analysis dated December 10 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss Differential Analysis Continue with (Alt. 1) or Replace (Alt. 2) Old Machine December 10 Line Item Description Revenues Proceeds from sale of old machine Costs Purchase price Variable productions costs (8 years) Proft (less) Feedback Continue with Old Machine (Alternative 1) Replace Old Machine…
A company is considering replacing an old piece of machinery, which cost $597,400 and has $349,000 of accumulated depreciation to date, with a new machine that has a purchase price of $483,100. The old machine could be sold for $64,500. The annual variable production costs associated with the old machine are estimated to be $157,900 per year for eight years. The annual variable production costs for the new machine are estimated to be $102,300 per year for eight years. Question Content Area a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisContinue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)April 29 Continuewith OldMachine(Alternative 1) ReplaceOldMachine(Alternative 2) DifferentialEffecton Income(Alternative 2) Revenues:…