eed to do replacement analysis to determine which option is the best financial decision for the company. sidering replacing an existing piece of equipment. The project involves the following: equipment will have a cost of $2,400,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of O (at year 0) and four more years of depreciation left ($50,000 per year). equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage year 0) of $300,000. g the old machine will require an investment in net operating working capital (NOWC) of $20,000 that will be recovered at the e project's life (year 6). machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of O in each of the next six years (years 1-6). Hint: This value represents the difference between the revenues and operating cluding depreciation expense) generated using the new equipment and that earned using the old equipment. ect's cost of capital is 13%. pany's annual tax rate is 25%.
eed to do replacement analysis to determine which option is the best financial decision for the company. sidering replacing an existing piece of equipment. The project involves the following: equipment will have a cost of $2,400,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of O (at year 0) and four more years of depreciation left ($50,000 per year). equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage year 0) of $300,000. g the old machine will require an investment in net operating working capital (NOWC) of $20,000 that will be recovered at the e project's life (year 6). machine is more efficient, so the firm's incremental earnings before interest and taxes (EBIT) will increase by a total of O in each of the next six years (years 1-6). Hint: This value represents the difference between the revenues and operating cluding depreciation expense) generated using the new equipment and that earned using the old equipment. ect's cost of capital is 13%. pany's annual tax rate is 25%.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...
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