Crane Company is contemplating the replacement of an old machine with a new one. The following information has been gathered:Old MachineNew MachinePrice$360000$630000Accumulated Depreciation90000-0-Remaining useful life10 years-0-Useful life-0-10 yearsAnnual operating costs$280000$190600If the old machine is replaced, it can be sold for $24000.Which of the following amounts is a sunk cost?○ $190600O $280000○ $270000O $630000

Relevant cost is the cost that is different between different alternatives. This cost is considered…

Crane Company is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price Accumulated Depreciation $360000 $630000 90000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $280000 $190600 If the old machine is replaced, it can be sold for $24000. Which of the following amounts is a sunk cost? O $190600 O $280000 O $270000 O $630000

Crane Company is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price Accumulated Depreciation $360000 $630000 90000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $280000 $190600 If the old machine is replaced, it can be sold for $24000. Which of the following amounts is a sunk cost? O $190600 O $280000 O $270000 O $630000

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?
Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. Dunedin buys equipment frequently and wants to print a depreciation schedule for each assets life. Review the worksheet called DEPREC that follows these requirements. Since some assets acquired are depreciated by straight-line, others by units of production, and others by double-declining balance, DEPREC shows all three methods. You are to use this worksheet to prepare depreciation schedules for the new machine.
Vaughn Manufacturing is contemplating the replacement of an old machine with a new one. The following information has been gathered: Price Accumulated Depreciation Remaining useful life Useful life Annual operating costs Old Machine New Machine $430000 $860000 O $86000 O $430000 O $129000 Ⓒ$301000 129000 10 years 0 $344000 -0 0 10 years $258000 If the old machine is replaced, it can be sold for $34400. The company uses straight-line depreciation with a zero salvage value for all of its assets. Which of the following amounts is relevant to the replacement decision?
Marigold Corp. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $430000 $630000 Accumulated Depreciation 102000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $265000 $186600 If the old machine is replaced, it can be sold for $24000. Which of the following amounts is a sunk cost? $186600 $265000 $328000 $630000
Bramble Corp. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $420000 $840000 Accumulated Depreciation 126000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $335000 $252000 If the old machine is replaced, it can be sold for $33600. The company uses straight-line depreciation with a zero salvage value for all of its assets.The net advantage (disadvantage) of replacing the old machine is $(8400) $33500 $(84000) $23600
Crane Company is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $340000 $680000 Accumulated Depreciation 102000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $272000 $204000 If the old machine is repiaced, it can be sold for $27200. The company uses straight-line depreciation with a zero salvage value for all of its assets. Which of the following amounts is relevant to the replacement decision? $68000 • $238000 $102000 $340000
Concord Corporation 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 $275000 $448000 Accumulated depreciation 110000 - 0 - Annual operating costs 361000 283000 If the old equipment is replaced now, it can be sold for $74200. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.Which of the following amounts is irrelevant to the replacement decision? $165000 $373800 $74200 $448000
Bonita Industries is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $250000 $500000 Accumulated Depreciation 75000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $205000 $150000 If the old machine is replaced, it can be sold for $20000. The company uses straight-line depreciation with a zero salvage value for all of its assets.The net advantage (disadvantage) of replacing the old machine is $(50000) $(5000) $20500 $70000
Coronado Industries is contemplating the replacement of an old machine with a new one.. The following information has been gathered: Old Machine New Machine $260000 $520000 Price 78000 Accumulated Depreciation 0- Remaining useful life 10 years -0- 10 years Useful life -0- Annual operating costs $215000 $156000 If the old machine is replaced, it can be sold for $20800. The company uses straight-line depreciation with a zero salvage value for all of its assets The net advantage (disadvantage) of replacing the old machine is O$(5200) O $(52000) $21500 $90800
Concord Corporation is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Purchase price Accumulated depreciation Annual operating costs O $66000 Old Equipment New Equipment $225000 $500000 $(91000) $94000* O $(26000) 94000 316000 -0- If the old equipment is replaced now, it can be sold for $66000. Both the old equipment's remaining useful life and the new equipment's useful life is 6 years. The net advantage (disadvantage) of replacing the old equipment with the new equipment is 248000
Bramble Corp. 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 $195000 $320000 Accumulated depreciation 78000 - 0 - Annual operating costs 257000 203000 If the old equipment is replaced now, it can be sold for $52600. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.Which of the following amounts is irrelevant to the replacement decision? $52600 $117000 $320000 $257000
Kingbird 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 $229500 $382500 Accumulated depreciation 91800 - 0 - Annual operating costs 306000 244800 If the old equipment is replaced now, it can be sold for $61200. Both the old equipment’s remaining useful life and the new equipment’s useful life is 5 years.For this question only, assume that six months ago Chung’s equipment manager spent $30600 refurbishing the old equipment. Additionally, the equipment manager has determined that the new equipment can be rented out during idle periods to generate $1836 per year. Using this new information, what is the total cash flow associated with replacing the equipment? ($45900) ($321300) ($342720) ($312120)