Question

A factory is considering purchasing a lathe machine for the production. Each machine will cost $80,000 and have an operating and maintenance cost that of $20,000 each year. Assume the salvage value is $20,000 at the end of 6 years and the interest rate is 9%. What is the annual equivalent cost of owning and operating each machine?

Select one:

a. 35175

b. 25000

c. 44644

d. 55000

e. 40979

f. 31370

Answer #1

Since no depreciation has been mentioned we assume that the entire cost is depreciated at the beginning itself. Hence, the present value of the salvage value will be:

PV of salvage value = 20000/1.09^6 = 11925.3465.

Now, we annualize the buying cost and the present value of the salvage value Let the annualized cost be A.

80000 - 11925.3465 = A/1.09 + A/1.09^2 + ... +A/1.09^6

A = 15175.19.

Hence, the total annual equivalent cost will be = 15175 + 20000 = 35175 (Option A).

Purple Pumpkins Inc is considering purchasing a pumpkin carving
machine with a cost of $320,000 and a salvage value equal to zero
at the end of its 8-year useful life. If the machine is purchased,
annual revenues are projected to be $98,000 and annual operating
expenses exclusive of amortization expense are expected to be
$38,000. The straight-line method of amortization would be
used.
If the machine is purchased, the annual rate of return expected
is
Select one:
a. 8%
b....

A company is analyzing a pressing machine to acquire. The
purchasing price of this machine is $300,000. This machine will be
used towards pressing 1,000 products every 6 months, which each
will be sold for $50. Its operating and maintenance cost will be
$7000 in the first semi-annual and it increases by $500 every six
months (semi-annual) after that till the end of its useful life,
which year 7. The salvage value at the end of year 7 will be...

10. Sankey Corporation is considering purchasing a machine. The
cost of the machine is
$100,000. Its useful life is estimated to be 5 years and will
have no residual values at the end of
its useful life. The machine would produce a product annually
with the following financial
results:
Revenue 200,000
COGS 80,000
Gross Profit 120,000
Depreciation 20,000
Other Expenses 40,000
Net Income 60,000
Additional question: How to find annual net cash inflow for the
cash payback period?

Mahya Corporation is considering the purchase of a high-speed
lathe that has an invoice price of $300,000. The cost to ship the
lathe to Mahya's factory is $50,000, and the existing facilities
will require modifications that are expected to cost $50,000. The
machine will be depreciated on a straight-line basis over its
useful life of 10 years, assuming no salvage value. Mahya
Corporation is planning on paying for the lathe using a line of
credit at the bank that has...

A company is considering purchasing factory equipment that costs
$340,000 and is estimated to have a $20,000 salvage value at the
end of its 8-year useful life. If the equipment is purchased,
annual revenues are expected to be $90,000 and annual operating
expenses including depreciation expense are expected to be $78,000.
The straight-line method of depreciation would be used. If the
equipment is purchased, the annual rate of return (rounded) on this
equipment is Group of answer choices 7.1% 6.7%...

Machine X costs $20,000 with annual maintenance costs of
$700/year and a salvage value of $3000 at the end of a 5 year
useful life. Machine Y costs $30,000 with $500 maintenance cost the
first year, $575 the 2nd year, increasing by $75 each following
year. There is a salvage value of $8000 at the end of a 10-year
useful life. Assume these machines will be needed for at least 20
years. Assume that the costs will not change during...

Carlson Machine Shop is considering a four-year project to
improve its production efficiency by purchasing a new machine press
for $480,000 that will result in $160,000 in annual pre-tax cost
savings. The press will be depreciated using the 5-year MACRS
depreciation schedule and management expects to be able to sell it
for $70,000 at the end of four years. The new press will require an
initial inventory of $20,000 with an additional $3,000 in spare
parts inventory required each year...

A company is considering purchasing factory equipment that costs
$320,000 and is estimated to have a $20,000 salvage value at the
end of its 6-year useful life. If the equipment is purchased,
annual revenues are expected to be $90,000 and annual operating
expenses including depreciation expense are expected to be $78,000.
The straight-line method of depreciation would be used. The cash
payback period (rounded) on the equipment is T
he cash payback period (rounded) on the equipment is 6.40 years...

"A corporation is considering purchasing a vertical drill
machine. The machine will cost $68,000 and will have a 2-year
service life. The selling price of the machine at the end of 2
years is expected to be $33,000 in today's dollars. The machine
will generate annual revenues of $57,000 (today's dollars), but the
company expects to have annual expenses (excluding depreciation) of
$6400 (today's dollars). The asset is classified as a 7-year MACRS
property. The tax rate for the firm...

"A corporation is considering purchasing a vertical drill
machine. The machine will cost $73,000 and will have a 2-year
service life. The selling price of the machine at the end of 2
years is expected to be $41,000 in today's dollars. The machine
will generate annual revenues of $62,000 (today's dollars), but the
company expects to have annual expenses (excluding depreciation) of
$7900 (today's dollars). The asset is classified as a 7-year MACRS
property. The tax rate for the firm...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 25 minutes ago

asked 38 minutes ago

asked 39 minutes ago

asked 47 minutes ago

asked 47 minutes ago

asked 49 minutes ago

asked 55 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago