Question

A company is considering buying a new machine and replacing the old one. The managers have...

A company is considering buying a new machine and replacing the old one. The managers have collected the following information:

Current machine (old machine): ISK

ISK

The purchase price

50,000

Accumulated depreciation

40,000

Annual operating expenses

5,000

market

1,500

Impact value after 5 years

0

Repair of current machine (old machine):

Repair costs, improvements

12,000

Annual operating expenses after improvements

2,000

New engine:

The purchase price

56,000

Annual operating expenses

1,000

Impact value after 5 years

0

1. What is the sunk cost in the example?

2. Calculate profit or loss over a five-year period, assuming the company plans to purchase a new machine.

3. Calculate profit or loss over a five-year period, that the company is going to overhaul the existing machine.

4. What do you advise the company to do?

Homework Answers

Answer #1

It is better to purchase a new machinery rather to overhaul existing one.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A company is considering replacing an old machine with a new one. The old machine is...
A company is considering replacing an old machine with a new one. The old machine is completely depreciated and can be sold for $100,000 in the market. The company intends to sell this machine if it is replaced. The new machine costs $400,000. The replacement of the machine will require an increase in the inventories by $200,000 in addition, accounts receivables will increase by $75,000. The new machine is going to be depreciated over 3 years to 0 salvage value....
Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has...
Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, eight-year life $38,000 Annual depreciation (straight-line) 4,750 Annual manufacturing costs, excluding depreciation 12,400 Annual nonmanufacturing operating expenses 2,700 Annual revenue 32,400 Current estimated selling price of...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,500...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,500 and has $351,500 of accumulated depreciation to date, with a new machine that has a purchase price of $487,000. The old machine could be sold for $61,100. The annual variable production costs associated with the old machine are estimated to be $157,200 per year for eight years. The annual variable production costs for the new machine are estimated to be $101,700 per year for...
A company is considering replacing an old equipment with a new, more advanced machine. The new...
A company is considering replacing an old equipment with a new, more advanced machine. The new machine costs $100,000, will be used for 5 years, and with a salvage value of $10,000. The old machine has a current book value of $55,000, has 5 years of life remaining, an after-tax salvage value of $55,000 today and $5,000 (after-tax) after 5 years, and an annual depreciation of $10,000. The new machine is expected to increase annual sales by $30,000, and an...
A company is considering replacing a machine that was bought six years ago for ?$52,000. The?...
A company is considering replacing a machine that was bought six years ago for ?$52,000. The? machine, however, can be repaired and its life extended five more years. If the current machine is? replaced, the new machine will cost ?$44,000 and will reduce the operating expenses by ?$6,300 per year. The seller of the new machine has offered a? trade-in allowance of ?$14,700 for the old machine. If MARR is 6?% per year before? taxes, how much can the company...
(Apply Least Cost Approach) Val-Tek Company is considering replacing an old threading machine with a new...
(Apply Least Cost Approach) Val-Tek Company is considering replacing an old threading machine with a new threading machine that would substantially reduce annual operating costs. Selected data relating to the old and new machines are presented below: Old Machine New Machine Overhauling/Purchase Cost $40,000 $250,000 Salvage Value Now $30,000 - Annual Cash Operating Cost $150,000 $90,000 Salvage Value in Six Years $0 $50,000 Remaining Life 6 Years 6 Years Val-Tek Company uses a 10% discount rate. Should the company replace...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,700...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,700 and has $347,700 of accumulated depreciation to date, with a new machine that has a purchase price of $486,500. The old machine could be sold for $64,300. The annual variable production costs associated with the old machine are estimated to be $155,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $100,200 per year for...
#3 Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost...
#3 Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,000 and has $349,300 of accumulated depreciation to date, with a new machine that has a purchase price of $484,500. The old machine could be sold for $62,600. The annual variable production costs associated with the old machine are estimated to be $156,100 per year for eight years. The annual variable production costs for the new machine are estimated to be $102,100 per year...
The Wu Lighting Company is considering replacing an old, relatively inefficient vertical drill machine that was...
The Wu Lighting Company is considering replacing an old, relatively inefficient vertical drill machine that was purchased 7 years ago at a cost of $14,000. The machine had an original expected life of 12 years and no salvage value at the end of that period. The divisional manager reports that a new machine can be purchased. Over its five-year life, the new machine will expand sales from $11,000 to $19,000 a year and will reduce the usage of labor and...
#8 Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost...
#8 Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $598,800 and has $352,100 of accumulated depreciation to date, with a new machine that has a purchase price of $483,300. The old machine could be sold for $62,700. The annual variable production costs associated with the old machine are estimated to be $155,800 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,500 per year...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT