Bradford Inc. is considering replacing one of its old factory equipment with a new one. The following data are available: Old equipment: Purchase cost $50,000 Remaining useful life in years 5 years Current book value $25,000 Annual operating costs $8,000 per year Current expected selling price $10,000 Expected sales commission 5% of the selling price New equipment: Purchase cost $52,000 Useful life in years 5 years Residual value $0 Annual operating costs $3,000 per year What would be the differential impact on income from replacing the equipment in five years? Group of answer choices $17,000 decrease $25,000 increase $17,500 decrease $27,500 increase

Bradford Inc. is considering replacing one of its old factory equipment with a new one. The following data are available: Old equipment: Purchase cost $50,000 Remaining useful life in years 5 years Current book value $25,000 Annual operating costs $8,000 per year Current expected selling price $10,000 Expected sales commission 5% of the selling price New equipment: Purchase cost $52,000 Useful life in years 5 years Residual value $0 Annual operating costs $3,000 per year What would be the differential impact on income from replacing the equipment in five years? Group of answer choices $17,000 decrease $25,000 increase $17,500 decrease $27,500 increase

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...

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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 plans to purchase a new machine due to the expected demand for anew product. The machine costs Ghc185,000 and it is expected that the machineshall be used for five (5) years with a scrap value of Ghc15,000. The companyexpects the demand for the product to be as follows: Year 1 2 3 4 5 Demand (Units) 25,000 30,000 35,000 40,000 20,000 Increase Selling Price 2% per year Variable Cost of production Fixed production expenses 3% per year5% per year The company’s cost of capital is 10% and pays corporate tax at a rate of 25% inthe related year. Calculate the Net Present Value (NPV) of purchasing the newmachine advice whether it makes economic sense to buy the new machine.
Sweet Tea by the Gallons (STG) has an older piece of equipment that potentially needs to be replaced with a newer piece of equipment. Information for each machine is provided below: Current (Old) Equipment Book Value $320,000 Annual repair expense $8,000 Useful life 5 years Selling price $115,000 Selling expense $4,000 New Equipment Purchase Price $210,000 Annual repair expense $200 Years in lease 5 years What is the differential profit for purchasing the new equipment?
Vaughn Manufacturing is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $220500 $367500 Accumulated depreciation 88200 - 0 - Annual operating costs 294000 235200 If the old equipment is replaced now, it can be sold for $58800. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years. The company uses straight-line depreciation with a zero salvage value for all of its assets.For the 5-year period, what is the increase or decrease in net income associated with the new equipment? $88200` $58800 $(14700) $(73500)
Sweet Tea by the Gallons (STG) has an older piece of equipment that potentially needs to be replaced with a newer piece of equipment. Information for each machine is provided below: Current (Old) Equipment Book Value $320,000 Annual repair expense $8,000 Useful life 5 years Selling price $115,000 Selling expense $4,000 New Equipment Purchase Price $210,000 Annual repair expense $200 Years in lease 5 years What is the differential profit for keeping the old equipment? What is the differential profit for purchasing the new equipment? Which option is most profitable, keeping or replacing? Insert numerical value. What is one relevant qualitative consideration for this decision?
A machine was purchased 4 years ago. Its current market value is $14,000. Estimated future market values and annual operating costs for the next 5 years are given in the following table. What is the Economic service life of the machine if a 12% per year return is required? YearMarket Value,$Annual Operating cost,$ 10084 2 2684 2700 3000 3500 4900 1 8084 6000 3 4 2000 5
A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A: Purchase Cost of Equipment 703,668700,000 Salvage Value 100,454100,000 Daily operating cost 501500 Economic life, years 10 Alternative B: Rental at 1,5751,500 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.
A business is considering purchasing a piece of new equipment for $200,000. The equipment will generate the following revenues: Year 1: $50,000Year 2: $50,000Year 3: $50,000Year 4: $60,000The machine can be sold at the end of the year four for $25,000. Assume a discount of 8%. 1. What is the net present value(NPV)?
Lopez Company is considering replacing one of its old manufacturing machines. The old machine has a book value of $49,000 and a remaining useful life of five years. It can be sold now for $59,000. Variable manufacturing costs are $44,000 per year for this old machine. Information on two alternative replacement machines follows. The expected useful life of each replacement machine is five years. Machine A Machine B Purchase price $ 122,000 $ 136,000 Variable manufacturing costs per year 18,000 15,000 (a) Compute the income increase or decrease from replacing the old machine with Machine A. (b) Compute the income increase or decrease from replacing the old machine with Machine B. (c) Should Lopez keep or replace its old machine? (d) If the machine should be replaced, which new machine should Lopez purchase?
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 15%. After careful study, Oakmont estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed i Overhaul of the equipment in two years Salvage value of the equipment in four years: Annual revenues and costs: Sales revenues $ 130,000 $ 60,000 $ 8,000 $ 12,000 $ 250,000 $ 120,000 $ 70,000 Variable expenses Fixed out-of-pocket operating costs When the project concludes in four years the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using tables. Net present value Required: Calculate the net present value of this investment opportunity. (Round your final answer to the nearest whole dollar amount.)
Salsa Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 89,300 Remaining useful life 10 years Useful life 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. How much is the sunk cost?
A company is planning to purchase a machine that will cost P240,000, have a six-year life, and be depreciated over a six-year period with no salvage value. The company expects to sell the machine's output of 30,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales Costs: P 900,000 Manufacturing P 520,000 Depreciation on machine 40,000 Selling and administrative expenses 300,000 (860,000 ) Income before taxes P 40,000 Income tax (25%) (10,000 ) Net income…

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Old equipment:
Purchase cost	$50,000
Remaining useful life in years	5 years
Current book value	$25,000
Annual operating costs	$8,000 per year
Current expected selling price	$10,000
Expected sales commission	5% of the selling price

New equipment:
Purchase cost	$52,000
Useful life in years	5 years
Residual value	$0
Annual operating costs	$3,000 per year