Question

X Company is considering replacing one of its machines in order
to save operating costs. Operating costs with the current machine
are $62,000 per year; operating costs with the new machine are
expected to be $31,490 per year. The new machine will cost $157,000
and will last for four years, at which time it can be sold for
$2,000. The current machine will also last for four more years but
will not be worth anything at that time. It cost $40,000 four years
ago, but its current disposal value is only $7,000.

9. Assuming a discount rate of 8%, what is the incremental net
present value of replacing the current machine?

Incorrect. | Tries 1/3 | Previous Tries |

10. Assume the following two changes: 1) both machines will last
for six more years, 2) the salvage value of the new machine after
six years will be zero. If X Company replaces the current
equipment, what is the approximate internal rate of return [enter
your answer as .XX, so 1% would be .01]?

Answer #1

Req 9: | ||||

Net present value: | ||||

Saving in cost: | 30510 | |||

(62000-31490) | ||||

Annuity for 4 years at 8% | 3.3121 | |||

Present value of Savings in cost | 101052.2 | |||

Add: Present value of Salvage | 1470 | |||

($ 2000*PVF i.e. 0.735) | ||||

Present value of inflows | 102522.2 | |||

Less: Net initial investment | 150000 | |||

($ 157000-7000) | ||||

NPV | -47477.8 | |||

Req 10. | ||||

IRR: | ||||

Saving in cost: | 30510 | |||

(62000-31490) | ||||

Annuity for 6 years at 6% | 4.917 | |||

Present value of Savings in cost | 150017.7 | |||

Less: Net initial investment | 150000 | |||

($ 157000-7000) | ||||

NPV | 17.67 | |||

Hence, IRR = 6% |

X Company is considering replacing one of its machines in order
to save operating costs. Operating costs with the current machine
are $66,000 per year; operating costs with the new machine are
expected to be $49,000 per year. The new machine will cost $70,000
and will last for 6 years, at which time it can be sold for $4,000.
The current machine will also last for 6 more years but will have
zero salvage value. Its current disposal value is...

X Company is considering replacing one of its machines in order
to save operating costs. Operating costs with the current machine
are $65,000 per year; operating costs with the new machine are
expected to be $33,530 per year. The new machine will cost $154,000
and will last for five years, at which time it can be sold for
$3,000. The current machine will also last for five more years but
will not be worth anything at that time. It cost...

"Komatsu Cutting Technologies is considering replacing one of
its CNC machines with one that is newer and more efficient. The
firm purchased the CNC machine 10 years ago at a cost of $130,000.
The machine had an expected economic life of 13 years at the time
of purchase and an expected salvage value of $12,000 at the end of
the 13 years. The original salvage estimate is still good, and the
machine has a remaining useful life of 3 years....

Course Contents »
X Company is unhappy with a machine that they bought just a year
ago for $44,000. It is considering replacing it with a new machine
that will save significant operating costs. Operating costs with
the current machine are $60,000 per year; operating costs with the
new machine are expected to be $45,000 per year. Both machines will
last for 6 more years.The current machine can be sold immediately
for $5,000 but will have no salvage value at...

Xinhong Company is considering replacing one of its
manufacturing machines. The machine has a book value of $39,000 and
a remaining useful life of four years, at which time its salvage
value will be zero. It has a current market value of $49,000.
Variable manufacturing costs are $33,500 per year for this machine.
Information on two alternative replacement machines
follows.
Alternative A
Alternative B
Cost
$
118,000
$
112,000
Variable manufacturing costs per year
22,800
10,400
Calculate the total change...

Xinhong Company is considering replacing one of its
manufacturing machines. The machine has a book value of $43,000 and
a remaining useful life of 5 years, at which time its salvage value
will be zero. It has a current market value of $53,000. Variable
manufacturing costs are $33,700 per year for this machine.
Information on two alternative replacement machines
follows.
Alternative A
Alternative B
Cost
$
116,000
$
114,000
Variable manufacturing costs per
year
22,700
10,800
Calculate the total change...

"Jacobson Inc. is considering replacing one of its CNC machines
with one that is newer and more efficient. The firm purchased the
CNC machine 9 years ago at a cost of $137,000. The machine had an
expected economic life of 13 years at the time of purchase and an
expected salvage value of $14,000 at the end of the 13 years. The
original salvage estimate is still good, and the machine has a
remaining useful life of 4 years. The...

X Company is unhappy with a machine that they bought just a
year ago for $40,000. It is considering replacing it with a new
machine that will save significant operating costs. Operating costs
with the current machine are $67,000 per year; operating costs with
the new machine are expected to be $47,000 per year. Both machines
will last for 6 more years.The current machine can be sold
immediately for $7,000 but will have no salvage value at the end of...

X Company is unhappy with a machine that they bought just a year
ago for $41,000. It is considering replacing it with a new machine
that will save significant operating costs. Operating costs with
the current machine are $69,000 per year; operating costs with the
new machine are expected to be $45,000 per year. Both machines will
last for 4 more years.The current machine can be sold immediately
for $5,000 but will have no salvage value at the end of...

X Company is unhappy with a machine that they bought just a year
ago for $43,000. It is considering replacing it with a new machine
that will save significant operating costs. Operating costs with
the current machine are $66,000 per year; operating costs with the
new machine are expected to be $44,000 per year. Both machines will
last for 6 more years.The current machine can be sold immediately
for $5,000 but will have no salvage value at the end of...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 22 minutes ago

asked 37 minutes ago

asked 51 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago