Question

You have been asked to evaluate two different machines and provide a recommendation to your boss....

You have been asked to evaluate two different machines and provide a recommendation to your boss. Machine A costs $165,000 up front, has a 4-year life, and an annual after-tax OCF of negative $13,000 per year. Machine B costs $180,000 up front, has a 5-year life, and an annual after-tax OCF of negative $11,750. If the discount rate is 8 percent, what is the equivalent annual cost of each machine? What is the recommendation you would make to your boss regarding which machine the company should purchase?

Business   Finance   
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
Tim Smunt has been asked to evaluate two machines. After some​ investigation, he determines that they...
Tim Smunt has been asked to evaluate two machines. After some​ investigation, he determines that they have the costs shown in the following​ table:                                                                                                   Machine A Machine B Original Cost $15,000 $24,000 Labor per year $2,200 $4,800 Maintenance per year $4,600 $1,200 Salvage value $1,600 $7,500 He is told to assume​ that: 1. The life of each machine is 3 years. 2. The company thinks it knows how to make 8​% on investments no more risky than this one....
Tim Smunt has been asked to evaluate two machines. After some​ investigation, he determines that they...
Tim Smunt has been asked to evaluate two machines. After some​ investigation, he determines that they have the costs shown in the following​ table:                                                                                                    Machine A Machine B Original Cost $15,000 $28,000 Labor per year $2,000 $4,800 Maintenance per year $4,000 $800 Salvage value $1,600 $7,200 He is told to assume​ that: 1. The life of each machine is 3 years. 2. The company thinks it knows how to make 14​% on investments no more risky than this one....
Your firm is considering two projects. Your boss asked you to use the Equivalent Annual Annuity...
Your firm is considering two projects. Your boss asked you to use the Equivalent Annual Annuity method. Project A has an expected life of seven years, will cost $50,000,000, and will produce net cash flows of $12,000,000 each year. Project B has a life of fourteen years, will cost $60,000,000, and will produce net cash flows of $10,000,000 each year. The firm’s cost of capital is 12%. What is the equivalent annual annuity for each project? Which project should the...
Your boss asked you to evaluate a project with an infinite life. Sales and costs project...
Your boss asked you to evaluate a project with an infinite life. Sales and costs project to $1,000 and $500 per year, respectively. (Assume sales and costs occur at the end of the year [i.e., profit of $500 at the end of year one]). There is no depreciation and the tax rate is 21 percent. The real required rate of return is 10 percent. The inflation rate is 4 percent and is expected to be 4 percent forever. Sales and...
You are evaluating two different milling machines to replace your current aging machine. Machine A costs...
You are evaluating two different milling machines to replace your current aging machine. Machine A costs $233,463, has a three-year life, and has pretax operating costs of $60,516 per year. Machine B costs $399,822, has a five-year life, and has pretax operating costs of $32,258 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $43,001. Your tax rate is 34 % and your discount rate is 10 %....
"Your company needs a machine for the next 20 years. You are considering two different machines....
"Your company needs a machine for the next 20 years. You are considering two different machines. Machine A Installation cost ($): 2,500,000 Annual O&M costs ($): 77,000 Service life (years): 20 Salvage value ($): 79,000 Annual income taxes ($): 65,000 Machine B Installation cost ($): 1,250,000 Annual O&M costs ($): 107,000 Service life (years): 10 Salvage value ($): 46,000 Annual income taxes ($): 45,000 If your company s MARR is 14%, determine which machine you should buy. Assume that machine...
You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $73,500, has a 5-year life,...
You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $73,500, has a 5-year life, and has an annual OCF (after tax) of –$12,000 per year. The Keebler CookieMunster costs $100,000, has a 7-year life, and has an annual OCF (after tax) of –$10,000 per year. If your discount rate is 13 percent, what is each machine’s EAC? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
You have been asked by the president of your company to evaluate the proposed acquisition of...
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $70,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,500. Use of the truck will require an increase in NWC (spare parts inventory) of $2,500. The truck will have no effect on revenues, but it is expected to save the firm $23,400 per year in before-tax operating costs, mainly labor....
You have been asked by the president of your company to evaluate the proposed acquisition of...
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $20,100. Use of the truck will require an increase in NWC (spare parts inventory) of $2,100. The truck will have no effect on revenues, but it is expected to save the firm $17,000 per year in before-tax operating costs, mainly labor....
You are evaluating two different silicon wafer milling machines. The Techron I costs $258,000, has a...
You are evaluating two different silicon wafer milling machines. The Techron I costs $258,000, has a 3-year life, and has pretax operating costs of $69,000 per year. The Techron II costs $450,000, has a 5-year life, and has pretax operating costs of $42,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $46,000. If your tax rate is 25 percent and your discount rate is 10 percent, compute...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT