ZuoTi.Pro
Question

Clinton Truck Corp. is evaluating whether it should replace a 10-year old equipment. Because this is...

Clinton Truck Corp. is evaluating whether it should replace a 10-year old equipment. Because this is a replacement type of project, you set out to estimate relevant cash flows assuming the replacement decision is made. What cash flows do you think are valid and relevant in the initial period, i.e. period 0?

I. Purchase cost of a new machine alone II. Sales price of the old machine alone III. Potential cost savings from using the new machine IV. After-tax salvage value from selling the old machine

Group of answer choices

I and IV

II and III

I and II

I and III

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Answer: I and II;

For initial cash flow during Year 0, there is a requirement of purchase price of new machine and sale proceeds from old machine are required;

The savings from the new machine, could be in future as well and hence not required at year 0

0 0
Add a comment
Know the answer?
Add Answer to:
Clinton Truck Corp. is evaluating whether it should replace a 10-year old equipment. Because this is...
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. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 19. Deutsche Transport is considering to replace an old truck. The old truck can probably run three more year, and...

    19. Deutsche Transport is considering to replace an old truck. The old truck can probably run three more year, and will generate cash flows of $37,500 per year for next 3 years. The new truck will cost Deutsche Transport $80,000, and will generate cash flows of $52,000 per year for the next 6 years. If the real opportunity cost of capital is 9%, should Deutsche Transport replace the old truck now or should Deutsche Transport replace it 3 years later?...

  • Wind Company is considering replacing an old machine with a new one. The new machine has...

    Wind Company is considering replacing an old machine with a new one. The new machine has a cost of $320,000, an expected life of five years and zero salvage value. The before-tax cost savings generated by the new machine are shown as below: Year Before-tax cost savings($) 1 120,000 2 120,000 3 95,000 4 95,000 5 70,000 In this replacement exercise, the old machine can be sold for $80,000 today. Assume a 25% tax rate and a required rate of...

  • 2. The Jones Company is evaluating a proposal to purchase a new drill press to replace...

    2. The Jones Company is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. The cost of the new machine, including installation, is $200,000. The machine is expected to last four years. Depreciation is computed using the straight-line method with no salvage value assumed. Pretax cash flows are expected to increase by 70,000 each year. The expected salvage value of the machine in vear 5 is $20.000 The company has a...

  • When evaluating whether a currently used machine should be replaced and when the initial cost of...

    When evaluating whether a currently used machine should be replaced and when the initial cost of acquiring the existing machine (the defender) Select one a. needs to be included with a negative sign, without any discounting, in calculating the present worth of the decision to replace. b. should be forwarded to the future worth as of the current year and included in the project's cash flows. should not be included among the cash flows relevant for making the decision whether...

  • Complete the following table and compute the incremental cash flows associated with the replacement of the old equipment with the new equipment.

    At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment.The company will need to do replacement analysis to determine which option is the best financial decision for the company.Price Co. is considering replacing an existing piece of equipment. The project involves the following:•The new equipment will have a cost of $9,000,000, and it will be depreciated on a straight-line basis over a period of six years (years 1–6).•The...

  • Thompson’s Tree Farm is considering the replacement of its large delivery tractor and trailor. The old truck originally...

    Thompson’s Tree Farm is considering the replacement of its large delivery tractor and trailor. The old truck originally cost $ 60,000 when it was purchased one year ago.It is being depreciated over a six year life to zero book value.Thompson believes that the remaining useful life of the old truck is five years after which it will have a resale value of zero.The company can sell the truck now for$ 14,000.         The new truck will cost $90,000 and will be...

  • Suppose we are thinking about replacing an old computer with a new one. The old one...

    Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,300,000; the new one will cost, $1,560,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $300,000 after five years. The old computer is being depreciated at a rate of $260,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to...

  • Suppose we are thinking about replacing an old computer with a new one. The old one...

    Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,300,000; the new one will cost, $1,560,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $300,000 after five years. The old computer is being depreciated at a rate of $260,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to...

  • Tax Impact Capital Investment Projects typically have 4 major categories: 1. Initial Investment: Cash outflow to...

    Tax Impact Capital Investment Projects typically have 4 major categories: 1. Initial Investment: Cash outflow to purchase a new machine and the working capital cash outflows (if any) at year o 2. Current disposal of old machine and the effects of gain/loss from sales old machine on tax paid or tax savings (in case of sold of old machine) at year 0. 3. Annual net cash flow from operations: difference between net cash flows under old machine and new machine...

  • Question #4 Your company has a piece of equipment that is getting old. The company that sold the ...

    The depreciation method used is straight line. Question #4 Your company has a piece of equipment that is getting old. The company that sold the equipment to you has offered to replace the equipment with something better. The salesman has provided the following information: New Equipment Cost Expected increased cash flow Salvage value of old equipment Salvage value of new equipment Life expectancy Required rate of return Required payback period $1,500,000 $200,000 per year $20,000 $100,000 10 years 10% 8...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT