What is the purpose of marginal analysis when exploring replacement of an asset? Question 18 options:...
What is the purpose of marginal analysis when exploring replacement of an asset?
Question 18 options:
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To determine the length of time the challenger asset should be used once adopted. |
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To estimate the cost of capital for the new asset |
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To determine if the defender asset should be used beyond its ESL. |
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To determine what the most appropriate tax rate for the project should be |
Homework Answers
Ans. To estimate the cost of capital for the new asset
Marginal analysis goal is to determine if the costs associated with the change in activity will result in a benefit that is sufficient enough to offset them.
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What is the purpose of marginal analysis when exploring
replacement of an asset?
Question 18 options:...
how we got the table Economic Life of a Defender (Existing Asset) It is desired to...
how we got the table
Economic Life of a Defender (Existing Asset) It is desired to determine how much longer a forklift truck should remain in service before it is replaced by the new truck (challenger) for which data were given in Example 9-4 and Table 9-2. The defender in this case is two years old, $7.500. It kept, its originally cost $19.500, and has a present realizable MV of $7,500 MVs and annual expenses are expected to be as...
A replacement analysis is being done for a vacuum seal on a spacecraft. The current seal...
A replacement analysis is being done for a vacuum seal on a spacecraft. The current seal can be used for 10 more years, or a new one can be purchased and used instead. The new seal would cost $25,000, and there would be an annual $5,000 of maintenance cost. It is estimated the seal could be sold for $7,000 in 10 years. The current seal can be sold now for $9,000 or for $2,000 in 10 years. The required annual...
One alternative is to replace 18. Typically, there are two alternatives in a replacement analysis. the...
One alternative is to replace 18. Typically, there are two alternatives in a replacement analysis. the defrender now. The other alternative is which of the following? A. Keep the defender for its remaining useful life. B. Keep the defender for another year and then reexamine the situation. Censthe defender until an improved chalenger better than the current challenger comes to market D. Keep the defender as long as it's operational 19. A hospital in The Upper Cumberland area bought a...
Problem 11-04 (Replacement Analysis) Question 5 of 9 Check My Work (1 remaining) eBook Replacement Analysis...
Problem 11-04 (Replacement Analysis) Question 5 of 9 Check My Work (1 remaining) eBook Replacement Analysis Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $114,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor...
What is the economic service life of a project? Question 16 options: It is the present...
What is the economic service life of a project? Question 16 options: It is the present worth of the project after tax considerations have been deducted. It is the same as the cost basis of the project. It is the amount of time an asset should be used such that it has the smallest annual cost of operation. It is the amount of time an asset can operate before it becomes obsolete or fails.
First drop down options: $28,620 $25,317 $20,914 $22,015 Second drop down options: Bonus Straight-line 3. Analysis...
First drop down options:
$28,620
$25,317
$20,914
$22,015
Second drop down options:
Bonus
Straight-line
3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price Variable cost per unit Fixed operating costs Year 1 3,000 $17.25 $8.88 $12,500 Year 2 3,250 $17.33...
Question #1 a) A firm has an asset with a market value of $20,000 and a...
Question #1 a) A firm has an asset with a market value of $20,000 and a book value of $30,000. If its marginal tax rate is 25%, what will the net proceeds from selling the asset be? b) A firm has an asset with a market value of $10,000 and a book value of $4,000. If its marginal tax rate is 25%, what will the net proceeds from selling the asset be? Question #2 A firm believes it can generate...
and P1-4 (similar to) Question Help Marginal cost benefit analysis and the goal of the firm...
and P1-4 (similar to) Question Help Marginal cost benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $593,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $369.000 (also in today's dollars) over that same time...
Chap 12- Handout 1 12.2 Analysis of an Expansion Project Fxed Asset Purchase + Investment in...
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QUESTION 2 – SENSITIVITY ANALYSIS (25 POINTS) Consider a project to supply Detroit with 40,000 tons...
QUESTION 2 – SENSITIVITY ANALYSIS (25 POINTS) Consider a project to supply Detroit with 40,000 tons of machine screws annually for automobile production. You will need an initial $5,600,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $600,000 and that variable costs should be $250 per ton. Further, the accounting department will depreciate the initial fixed asset investment straight-line to zero over...
how we got the table
Economic Life of a Defender (Existing Asset) It is desired to determine how much longer a forklift truck should remain in service before it is replaced by the new truck (challenger) for which data were given in Example 9-4 and Table 9-2. The defender in this case is two years old, $7.500. It kept, its originally cost $19.500, and has a present realizable MV of $7,500 MVs and annual expenses are expected to be as...
One alternative is to replace 18. Typically, there are two alternatives in a replacement analysis. the defrender now. The other alternative is which of the following? A. Keep the defender for its remaining useful life. B. Keep the defender for another year and then reexamine the situation. Censthe defender until an improved chalenger better than the current challenger comes to market D. Keep the defender as long as it's operational 19. A hospital in The Upper Cumberland area bought a...
Problem 11-04 (Replacement Analysis) Question 5 of 9 Check My Work (1 remaining) eBook Replacement Analysis Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $114,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor...
First drop down options:
$28,620
$25,317
$20,914
$22,015
Second drop down options:
Bonus
Straight-line
3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Garida Co.: Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs: Unit sales Sales price Variable cost per unit Fixed operating costs Year 1 3,000 $17.25 $8.88 $12,500 Year 2 3,250 $17.33...
and P1-4 (similar to) Question Help Marginal cost benefit analysis and the goal of the firm Ken Allen, capital budgeting analyst for Bally Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $593,000 (in today's dollars) over the next 5 years. The existing robotics would produce benefits of $369.000 (also in today's dollars) over that same time...
Chap 12- Handout 1 12.2 Analysis of an Expansion Project Fxed Asset Purchase + Investment in NOWC SALES COGS DEP EBIT SALES COGS DEP SALES Opportunity Cost Total Initial Outiay NOPAT-EBIT NOPAT . EBIT(1M NOPAT-EBTan NOPAT DEP OCF NOPAT + DEP OCF NOPAT + DEP OCF Cthr OCF Recoup NOwc +ATSV Total Teminal CF FCF Timeline Terminal Year FCFs Total Terminal CF FCFo Total initial 0. You are to evaluate an expansion project for your firm. Last year, the firm...
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