Question

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 raw materials sufficiently to cut annual operating costs from $8,000 to $2,000. The new machine has an estimated salvage value of $1,900 at the end of its five-year life. The old machine`s current market value is $1,900; the firm`s MARR is 18%. What price of the new machine will make the Wu Lighting Company indifferent between keeping the old machine and purchasing a new machine? Enter your answer as positive number. Hint: think of comparing the present worth of the two options

Answer #1

Present value of Cash inflows: | ||||||

Annual Increase in Sales revenue | 25017.6 | |||||

($ 8000 * Annuity factor for 5 years i.e. 3.1272) | ||||||

Annual Savings in labour cost | 18763.2 | |||||

($ 6000 *Annuity factor for 5 yrs i.e.3.1272) | ||||||

Present value of Salvage Value of new machine | 830.49 | |||||

($ 1900* PVf for Year-5 i.e. 0.4371) | ||||||

Salvage value realised of oldmachinery | 1900 | |||||

Present value of inflows | 46511 | |||||

Hence, the price to be paid for new machine is $ 46511 to be indifferent. |

Chris Co. is considering replacing an old machine. The old
machine was purchased for $100,000 and has a book value of $40,000
and should last four more years. Chris Co. believes that it can
sell the old machine for $40,000. The new machine cost $80,000 and
will have a 4-year life and a $10,000 salvage value. Currently, it
cost $20,000 annually to operate the old machine. The new machine
is more efficient and should reduce operating cost by 25%. Based...

The Lagos Leather Corporation is considering replacing
the drill press that it currently uses to manufacture handbags. The
drill press, purchased just 2 years ago, is being depreciated on a
straight-line basis and has 6 years of remaining life. Its current
book value is $1,800, and it could be sold on an Internet auction
site for $4,500 at this time. The annual depreciation expense on
the press will be $300 per year for the remaining 6 years of its
life....

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....

A firm is considering replacing a machine that has been used to
make a certain kind of packaging material. The new, improved
machine will cost $32,000 installed and will have an estimated
economic life of 10 years, with a salvage value of $2,500.
Operating costs are expected to be $1,000 per year throughout the
service life of the machine. The old machine (still in use) had an
original cost of $25,000 four years ago, and at the time it was...

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? 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...

A company is thinking in replacing an existing machine. The old
machine it is expected to last for another four (4) years and has a
market value of $3,000. Operating estimated costs are $2,000 each
year. The new machine or challenger has a cost of $15,000,
operating cost of $1,000 and an expected life of 10 years. The
salvage value of the new machine is $5,000. Should be replaced,
with an interest rate of 10%?
a. Replace, the defender is...

"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...

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...

"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....

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 10 minutes ago

asked 18 minutes ago

asked 20 minutes ago

asked 43 minutes ago

asked 55 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 1 hour ago