As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $75,500. Its operating costs are $23,400 a year, but in five years the machine will require a $18,300 overhaul. Thereafter operating costs will be $31,700 until the machine is finally sold in year 10 for $7,550.
The older machine could be sold today for $26,700. If it is kept, it will need an immediate $28,500 overhaul. Thereafter operating costs will be $36,000 a year until the machine is finally sold in year 5 for $7,550.
Both machines are fully depreciated for tax purposes. The company pays tax at 35%. Cash flows have been forecasted in real terms. The real cost of capital is 9%.
Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
Particulars | Option 1- Sell Newer Machine and continue with Older | PVAF/PVDF | PV of Cash flows |
Sale proceeds net of Tax @35% | -49,075.00 | 1.00 | -49,075.00 |
Immediate Overhaul for Older Machine | 28,500.00 | 1.00 | 28,500.00 |
Operating cost for 1-5 Years | 36,000.00 | 3.89 | 1,40,027.45 |
Operating Cost for 6-10 Year | 31,700.00 | 2.53 | 80,137.80 |
Sales vale of Oder machine in 5th year net of Tax | -4,907.50 | 0.65 | -3,189.54 |
NPV of Option 1 | 1,96,400.71 |
Particulars | Option 2- Sell Older Machine and continue with Newer | PVAF/PVDF | PV of Cashflows |
Sale proceeds net of Tax @35% | -17,355.00 | 1.00 | -17,355.00 |
Operating cost for 1-5 Years for newer Machine | 23,400.00 | 3.89 | 91,017.84 |
Overhaul for newer Machine in the 5th year | 18,300.00 | 0.65 | 11,893.74 |
Sales vale of Oder machine in 5th year net of Tax | -4,907.50 | 0.65 | -3,189.54 |
NPV of Option 2 | 82,367.05 |
Particulars | Option 1 | Option 2 |
NPV | 1,96,400.71 | 82,367.05 |
PVAF 10years for Option 1 | 6.417657701 | |
PVAF 5years for Option 2 | 3.889651263 | |
Equivalent Annual Cost =NPV/PVAF | 30,603.18 | 21,175.95 |
As a result of improvements in product engineering, United Automation is able to sell one of...
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold taday for 75,500. Its operating costs are $23,400 a year, but in five years the machine will require a $18,300 overhaul. Thereafter operating costs will be $31,700 until the machine is finally sold in year 10 for $7,550. The older machine could be sold...
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $69,500. Its operating costs are $20,600 a year, but in five years the machine will require a $18,700 overhaul. Thereafter operating costs will be $31,300 until the machine is finally sold in year 10 for $6,950. The older machine could be sold...
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $63,500. Its operating costs are $21,800 a year, but in five years the machine will require a $19,100 overhaul. Thereafter operating costs will be $30,900 until the machine is finally sold in year 10 for $6,350. The older machine could be sold...
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $60,500. Its operating costs are $21,400 a year, but at the end of five years, the machine will require a $19,300 overhaul (which is tax deductible). Thereafter, operating costs will be $30,700 until the machine is finally sold in year 10 for...
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $72,500. Its operating costs are $23,000 a year, but at the end of five years, the machine will require a $18,500 overhaul (which is tax deductible). Thereafter, operating costs will be $31,500 until the machine is finally sold in year 10 for...
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $63,500. Its operating costs are $21,800 a year, but in five years the machine will require a $19,100 overhaul. Thereafter operating costs will be $30,900 until the machine is finally sold in year 10 for $6,350 The older machine could be sold...
10.00 points As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $65,000. Its operating costs are $22,000 a year, but in tive years the machine will require a $19,000 overhaul. Thereafter operating costs will be $31,000 until the machine is inally sold in year 10 for $6,500. The older machine could...
10.00 points As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $65,000. Its operating costs are $22,000 a year, but in tive years the machine will require a $19,000 overhaul. Thereafter operating costs will be $31,000 until the machine is inally sold in year 10 for $6,500. The older machine could...
Company A is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $66,500. Its operating costs are $22,200 a year, but in five years the machine will require a $18,900 overhaul. Thereafter operating costs will be $31,100 until the machine is finally sold in year 10 for $6,650.The older machine could be sold today for $26,100. If it is kept, it will...
Calculate the equivalent annual costs of (a) overhauling and operating the Maracas for 12 more years (with and without the new engine and control system) and (b) buying and operating the proposed replacement vessel for 20 years. You should use the real discount rate for this analysis. Based on your answer, what should RNI do? Mini Case #1: Capital Budgeting at Rio Negro, Inc. Assignment Overview Rio Negro, Inc. (RNI) is in the business of transporting cargo between ports in...