Question

Samuel Manufacturing Inc. is evaluating new machinery in its factory. The machinery would replace existing equipment....

Samuel Manufacturing Inc. is evaluating new machinery in its factory. The machinery would replace existing equipment. The new machinery would cost $430,000, would last 6 years, and would have a salvage value of $36,000. The existing machinery currently has a net book value of $72,000 and could be sold for $65,000. If kept, the old machine would have a salvage value of $5,000 in 6 years time. The new machinery is expected to lower direct labour costs by $22,000 per year. The current variable overhead rate is 120% of direct labour. Other annual cost savings are projected to be $15,000. Due to the reduction in the production cycle time, working capital requirements will decrease by $8,000 during the life of the new machine. Ignore income taxes.

Required:

Calculate the net present value of replacing the existing equipment at a 12 percent required rate of return.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
BioFarm Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was...
BioFarm Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $120,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $43,000. The new equipment can be bought for $173,460, including installation. Over its 10-year life, it will reduce operating expenses...
Tomato plant Inc. wants to replace its current machinery which is listed in its balance sheet...
Tomato plant Inc. wants to replace its current machinery which is listed in its balance sheet with a book value of $5 million, with new machinery costing $16 million. The current machinery can be sold for $3 million. The new machinery has an expected life of four years. The current machinery can still be used for another four years. Both machinery will have no salvage value at the end of their useful lives. The replacement of the current with the...
Austalian Door Inc. wants to replace its current machinery which is listed in its balance sheet...
Austalian Door Inc. wants to replace its current machinery which is listed in its balance sheet with a book value of $5 million, with new machinery costing $16 million. The current machinery can be sold for $3 million. The new machinery has an expected life of four years. The current machinery can still be used for another four years. Both machinery will have no salvage value at the end of their useful lives. The replacement of the current with the...
BioFarm Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was...
BioFarm Inc. wants to replace its current equipment with new high-tech equipment. The existing equipment was purchased 5 years ago at a cost of $122,000. At that time, the equipment had an expected life of 10 years, with no expected salvage value. The equipment is being depreciated on a straight-line basis. Currently, the market value of the old equipment is $43,300. The new equipment can be bought for $174,900, including installation. Over its 10-year life, it will reduce operating expenses...
The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment....
The Rustic Welt Company is proposing to replace its old welt-making machinery with more modern equipment. The new equipment costs $12 million, is expected to last 9 years and has no salvage value. The existing equipment has a zero salvage value. The new machinery is expected to cut manufacturing costs from their current level of $7 per unit to $3. However, as the following table shows, there is uncertainty about future sales and unit costs. The opportunity cost of capital...
Canal Company is contemplating the purchase of a new leather sewing machine to replace the existing...
Canal Company is contemplating the purchase of a new leather sewing machine to replace the existing machine. The existing machine was purchased four years ago at an installed cost of $115,000; it was being depreciated under MACRS using a 5-year recovery period. The existing machine is expected to have a useful life of 5 more years. The new machine costs $203,000 and requires $8,000 in installation costs; it has a five-year useable life and would be depreciated under MACRS using...
apple wants to replace its current machinery which is listed in its balance sheet with a...
apple wants to replace its current machinery which is listed in its balance sheet with a book value of $5 million, with new machinery costing $16 million. The current machinery can be sold for $3 million. The new machinery has an expected life of four years. The current machinery can still be used for another four years. Both machinery will have no salvage value at the end of their useful lives. The replacement of the current with the new machinery...
Tide company is planning to replace old machinery with new, more efficient equipment. The company spent...
Tide company is planning to replace old machinery with new, more efficient equipment. The company spent $100,000 on a market study months ago. The new machinery will cost $2,500,000 and has an estimated salvage value of $400,000. In order to make the machinery operatable, the Tide must pay $120,000 for shipping and $150,000 for training. With the anticipated growth due to the machinery replacement, Tide has to invest $90,000 in working capital. The machinery will be depreciated via the simplified...
Net present value: Crescent Industries is planning to replace some existing machinery in its plant. The...
Net present value: Crescent Industries is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. Year Cash Flow 0 -$3,493,710 1 $816,490 2 $930,375 3 $1,216,906 4 $1,341,053 5 $1,392,665 If the company uses an 18 percent discount rate for project like this, the NPV is $____, and the company should reject or accept the project?
LoRusso Co. is considering replacing an existing piece of equipment. The project involves the following: •...
LoRusso Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $1,800,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT