16) Company recovers its investment in this machine, since annual revenue from the machine is $ 45000 but capital recovery is $ 40000 which means annual revenue is greater than capital recovery.
17) To compare two or more alternatives by the annual growth method, calculate the annual worth of the each one over its life cycle and select one with lowest equivalent annual worth for the cost alternatives or highest annual worth for revenue alternative. Comparing different life alternatives on the basis of their annual worth over one life cycle assumes that
i) The alternative will be needed for at least their last common multiple of years and
ii) The cost in all succeeding life cycle will change only by inflation or deflation rate.
Therefore, Find the AW of each over the Least Common Multiples (LCM) of all of the alternatives.
16 A company purchased a machine that provided annual revenue of $45,000. The company calculated the...
Lexigraphic Printing Company is considering replacing a machine
that has been used in its factory for four years. Relevant data
associated with the operations of the old machine and the new
machine, neither of which has any estimated residual value, are as
follows:
Old Machine
Cost of machine, 10-year life
$88,820
Annual depreciation (straight-line)
9,050
Annual manufacturing costs, excluding depreciation
23,470
Annual non-manufacturing operating expenses
6,020
Annual revenue
74,030
Current estimated selling price of machine
29,610
New Machine
Purchase price...
Differential Analysis for Machine Replacement Proposal Flint Tooling Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, 10-year life $108,300 Annual depreciation (straight-line) 10,830 Annual manufacturing costs, excluding depreciation 38,800 Annual nonmanufacturing operating expenses 11,500 Annual revenue 95,100 Current estimated selling price of...
3. The Capitalpoor Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and service. If the machine is purchased, a comparable repair and service contract can be obtained for $1,100 per year. The salesperson of the business machine firm has indicated that the expected useful service life of this machine is five years, with zero market value at the end...
Your company is upgrading the breakroom and kitchen. It is going to include an expresso machine, a fridge with compartments for each employee, a sink, microwave, toaster oven, tables chairs, a rock wall, snacks for everyone, and maybe some other bells and whistles. Your managers think that by updating this area employees will not take as long of lunches. They understand this purchase will be at a cost. You are tasked with considering two different options and presenting them to...
This exercise parallels the machine-purchase decision for the Mendoza Company that is discussed in the body of the chapter. Assume that Mendoza is exploring whether to enter a complementary line of business. The existing business line generates annual cash revenues of approximately $5,250,000 and cash expenses of $3,765,000, one-third of which are labor costs. The current level of investment in this existing division is $12,500,000. (Sales and costs of this division are not affected by the investment decision regarding the...
This exercise parallels the machine-purchase decision for the Mendoza Company that is discussed in the body of the chapter. Assume that Mendoza is exploring whether to enter a complementary line of business. The existing business line generates annual cash revenues of approximately $5,700,000 and cash expenses of $3,810,000, one-third of which are labor costs. The current level of investment in this existing division is $12,350,000. (Sales and costs of this division are not affected by the investment decision regarding the...
This exercise parallels the machine-purchase decision for the Mendoza Company that is discussed in the body of the chapter. Assume that Mendoza is exploring whether to enter a complementary line of business. The existing business line generates annual cash revenues of approximately $4,950,000 and cash expenses of $3,735,000, one-third of which are labor costs. The current level of investment in this existing division is $12,600,000. (Sales and costs of this division are not affected by the investment decision regarding the...
TCO 8) Tomcat Company is planning to acquire a $250,000 machine to improve manufacturing efficiencies, thereby reducing annual cash operating costs (before taxes) by 80,000 for each of the next five years. The company estimated the weighted average cost of capital (WACC) is 8%. The machine will be depreciated using straight-line method over a five year life with no salvage value. Fritz is subjected to a combined 40% income tax rate. Required. A. What is the estimated net present value...
Check my work This exercise parallels the machine-purchase decision for the Mendoza Company that is discussed in the body of the chapter. Assume that Mendoza is exploring whether to enter a complementary line of business. The existing business line generates annual cash revenues of approximately $5,400,000 and cash expenses of $3,780,000, one-third of which are labor costs. The current level of investment in this existing division is $12,450,000. (Sales and costs of this division are not affected by the investment...
Check my work This exercise parallels the machine-purchase decision for the Mendoza Company that is discussed in the body of the chapter. Assume that Mendoza is exploring whether to enter a complementary line of business. The existing business line generates annual cash revenues of approximately $5,400,000 and cash expenses of $3,780,000, one-third of which are labor costs. The current level of investment in this existing division is $12,450,000. (Sales and costs of this division are not affected by the investment...