Question

Problem 13-29A Magna Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment. Old Equipment Cost Accumulated depreciation Remaining life Current salvage value Salvage value in 8 years Annual cash operating costs $80,000 $40,000 8 years $10,000 $0 $35,000 New Equipment Cost Estimated useful life Salvage value in 8 years Annual cash operating costs $38,000 8 years $4,496 $29,000 Depreciation is $10,000 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value $4,496. Determine the cash payback period (Ignore income taxes). (Round answer to 3 decimal places, e.g. 15.275.) Cash payback period years LINK TO TEXT LINK TO TEXT LINK TO TEXT Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.) Annual rate of retum

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Answer 1

Solution bilang Eyuipment old Ingripent - $80,000 cost cost - $ 38,000 Acwmolated - life $40,000 - 8 years - $4,49€ Salvage valse in eyes Annual Cash quating costs - $29,000 Stroight value method. olepreciation Remaining life - 8 years went Salvage, value - 4.10.07 Замозе аgе frus - 6 Annual Get of - $35,000 quating costs Depreciation - $10.000 (i) calculation of cauk payback particulars Initial cost period :- New Old $ 80,000 $ 38,000 $10,000 Depreciation. $4188 (38050-4496 Saving in annual cash quating experek Total Annual saving? cash payback period $ 16,138 4 10,000 [H] (3.73] 38000 (80,000 -44.000) [0,000 10,138

New ( Annual rate of return! S old Annual saling) . Tia-soy . [26.817) Initial Investrient (104670/80,000) (10,188/38.) .Cii? Calculation of Net prevent value aluming a [77. rate of return :- Boitial celt -($38,000) dalvage value of old - $10,000 Machine pů of savings in annual - $ 25,242 oquating expenius (35000 - 29000) *4.207 -$1280146 Pu of salvage (New) 14996% 0-2848) i ner of decizon (477-54) (iv) As the new of the The company should equipment decision is not purchase negative, the new