Question

The trade-in value of an old machine was zero and the NBV was also zero. If...

The trade-in value of an old machine was zero and the NBV was also zero. If instead, the trade-in value of the old machine was $20,000, what would be the impact on the net present value of the proposal to purchase a new machine?

a.

It would increase the net present value of the proposal.

b.

It would decrease the net present value of the proposal.

c.

It would not affect the net present value of the proposal.

d.

Potentially it could increase or decrease the net present value of the new lathe.
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Option A is correct
a. It would increase the net present value of the proposal.
When there is a trade in value of old machine than it decreases the imitial investment cost by its
traded value thereby increaseing the net present value of new machine.
So $20000 trade in value would decrease the initial investment by $20000 and increase the NPV of the new machine
If any doubt please comment
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
Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one....
Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old machine has a book value of $5,000, and its remaining useful life is five years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New equipment would cost $18,000 with annual operating costs of $1,500. The new machine has an estimated useful life of five years. Should the machine be replaced? No Support your answer with calculations....
ABC Co. is considering replacing a machine. The original cost of the old machine currently in...
ABC Co. is considering replacing a machine. The original cost of the old machine currently in use is $10,000 (with accumulated depreciation of $8,000) while the purchase price of the contemplated new machine is $20,000. Annual operating costs for the current machine is $7,000/ year and estimated to be $2,600/ year for the new machine. Both machines will have an estimated remaining useful of 5 years. If sold now, the current machine would have a salvage value of $1,000 while...
Sorrentino, Inc., is considering disposing of a machine with a book value of $22,500 and an...
Sorrentino, Inc., is considering disposing of a machine with a book value of $22,500 and an estimated remaining life of three years. The old machine can be sold for $6,250. A new machine with a purchase price of $68,750 is being considered as a replacement. The new machine will have a three year useful life and no residual value. It is estimated that annual manufacturing costs will be reduced from $43,750 to $20,000 if the new machine is purchased. Ignoring...
Delafono is evaluating the option of replacing an old pasta-making machine that is expected not to...
Delafono is evaluating the option of replacing an old pasta-making machine that is expected not to last more than two years. During that time, the machine is expected to generate a cash inflow of 20,000 per year. It could be replaced by a new machine at a cost of 150,000. The new machine is more efficient than the current one, and as a result, it is expected to generate a net cash flow of 75,000 per year for three years....
Aurora Company is considering the purchase of a new machine. The invoice price of the machine...
Aurora Company is considering the purchase of a new machine. The invoice price of the machine is $123,000, freight charges are estimated to be $4,000, and installation costs are expected to be $5,000. Salvage value of the new equipment is expected to be zero after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage value of the equipment would...
Consider the following two options related to one of old machine tools in your shop: Option...
Consider the following two options related to one of old machine tools in your shop: Option 1: You continue to use the old machine tool that was bought four years ago for $12,000. It has been fully depreciated but can be sold for $2,000. If kept, it could be used for three more years with proper maintenance and with some extra care. No salvage value is expected at the end of three years. The maintenance costs would run $10,000/year for...
Consider the following two options related to one of old machine tools in your shop: Option...
Consider the following two options related to one of old machine tools in your shop: Option 1: You continue to use the old machine tool that was bought four years ago for $12,000. It has been fully depreciated but can be sold for $2,000. If kept, it could be used for three more years with proper maintenance and with some extra care. No salvage value is expected at the end of three years. The maintenance costs would run $10,000/year for...
ABC company is considering replacing their old manual loading machine with an automatic loading machine. The...
ABC company is considering replacing their old manual loading machine with an automatic loading machine. The manual machine cost $300000 three years ago, and is being depreciated over 10 years straight line depreciation, with no salvage value. If ABC replaces the manual machine, the new automatic machine will cost $4000000 and have a useful life of 10 years. This will also be depreciated on a straight line basis to zero. As a result of this new machine, there will be...
You can continue to use your less efficient old machine with an initial cost zero and...
You can continue to use your less efficient old machine with an initial cost zero and a maintenance cost of $8,960 annually for the next five years. Alternatively, you can purchase a more efficient new machine for $12,000 initial cost today, plus $5,000 annual maintenance with the same 5 years life. At a cost of capital of 15%, you should: A. Buy the new machine and save $380 in equivalent annual annuity. B. Keep the old machine and save $380...
Dinkins Inc. is considering disposing of a machine with a book value of $50,000 and an...
Dinkins Inc. is considering disposing of a machine with a book value of $50,000 and an estimated remaining life of five years. The old machine can be sold for $15,000. A new machine with a purchase price of $150,000 is being considered as a replacement. It will have a useful life of five years and no residual value. It is estimated that variable manufacturing costs will be reduced from $70,000 to $45,000 if the new machine is purchased. Determine the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT