Question

c Quesion 10 2 points Save Anw Butrite is considering the purchase of a new tive year machine worsh $90.000 it well cost another $10,000 t0 Insall the machine and Builtrite wll need to keep an extra $12,000 in inventory on hand due to the machines current machine were sold today, it could be sold for $0,000. In five M in he idency The current machine being used is 5 years eld and ante nnt,AN a sestretted to e as hage value of S ฏิ,00 Determine the initial investment ansocisted with the proposed replacement decision 572400 T oemi sold fanu ees wil eed to be ta ned for the new machine a acost of S4 ОО. The The new machine is expected to produce $90,000 in annual savings r vma hre sex ected to produce $75600 0579400

Answer 1

Initial cost of new machine = 90,000

Installation cost = 10,000

Inventory = 12,000

Employee training cost = 4,000

Total cost = 90,000+10,000+12,000 + 4,000 = 116,000

Salvage value of the old machine = 40,000

Book value of the old machine after 5 years = original cost - accumulated depreciation

= 60,000 - (6,000*5) = 30,000

After-tax salvage value = salvage value - (salvage value - book value)*tax rate

= 40,000 - (40,000 - 30,000)*34% = 36,600

Net initial cost = 116,000 - 36,600 = 79,400