Question

Rockyford Company must replace some machinery that has zero book value and a current market value of $3,000. One possibility

0 0
Add a comment Improve this question Transcribed image text
Answer #1

ANSWER

1).After-tax cash flow arising from disposing of the old machinery

= $3,000 * (1 - tax rate)

= $3,000 * (1 - 40%)

= $1,800

2).After-tax cash flows for each of the next 4 years attributable to the cash operating savings

= $20,800 * (1 - 40%)

= $12,480

present value of the after-tax cash flows for the next four years attributable to the cash operating savings

= $12,480 *  PVIFA (8%, 4)

= $12,480 * 3.312

= $41,333.76 or $41,334

3).Tax shield effect of depreciation

= Depreciation * Tax rate

= $13,000 * 40%

= $5,200

Present value of the tax shield effect of depreciation for year 1

= $5,200 * PVIF (8%,1)

= $5,200 * 0.925

= $4,810

__________________________________

If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating.

*****************THANK YOU*************

Add a comment
Know the answer?
Add Answer to:
Rockyford Company must replace some machinery that has zero book value and a current market value...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

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
  • Rockyford Company must replace some machinery that has zero book value and a current market value...

    Rockyford Company must replace some machinery that has zero book value and a current market value of $4,200. One possibility is to invest in new machinery costing $47,000. This new machinery would produce estimated annual pretax cash operating savings of $18,800. Assume the new machine will have a useful life of 4 years and depreciation of $11,750 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The investment in this...

  • Rockyford Company must replace some machinery that has zero book value and a current market value...

    Rockyford Company must replace some machinery that has zero book value and a current market value of $2,400. One possibility is to invest in new machinery costing $46,000. This new machinery would produce estimated annual pretax cash operating savings of $18,400. Assume the new machine will have a useful life of 4 years and depreciation of $11,500 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The investment in this...

  • 12-6. Rockyford Company must replace some machinery that has zero book value and a current market value of $3,000. One p...

    12-6. Rockyford Company must replace some machinery that has zero book value and a current market value of $3,000. One possibility is to invest in new machinery costing $52,000. This new machinery would produce estimated annual pretax cash operating savings of $20,800. Assume the new machine will have a useful life of 4 years and depreciation of $13,000 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The investment in...

  • Rockyford Company must replace some machinery that has zero book value and a current market value...

    Rockyford Company must replace some machinery that has zero book value and a current market value of $2,600. One possibility is to invest in new machinery costing $48,000. This new machinery would produce estimated annual pretax cash operating savings of $19,200. Assume the new machine will have a useful life of 4 years and depreciation of $12,000 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The investment in this...

  • Rockyford Company must replace some machinery that has zero book value and a current market value...

    Rockyford Company must replace some machinery that has zero book value and a current market value of $2,600. One possibility is to invest in new machinery costing $48,000. This new machinery would produce estimated annual pretax cash operating savings of $19,200. Assume the new machine will have a useful life of 4 years and depreciation of $12,000 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The investment in this...

  • Check my work Rockyford Company must replace some machinery that has zero book value and a...

    Check my work Rockyford Company must replace some machinery that has zero book value and a current market value of $1,400. One possibility is to invest in new machinery costing $36,000. This new machinery would produce estimated annual pretax cash operating savings of $14,400. Assume the new machine will have a useful life of 4 years and depreciation of $9,000 each year for book and tax purposes. It will have no salvage value at the end of 4 years. The...

  • Answer questions 1 through 4 regarding Rockyford Company Rockyford Company must replace some machinery that has...

    Answer questions 1 through 4 regarding Rockyford Company Rockyford Company must replace some machinery that has zero book value and a current market value of $2,600. One possibility is to invest in new machinery costing $48,000. This new machinery would produce estimated annual pretax cash operating savings of $19,200. Assume the new machine will have a useful life of 4 years and depreciation of $12,000 each year for book and tax purposes. It will have no salvage value at the...

  • The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery....

    The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $830. One possible alternative is to invest in new machinery, which has a cost of $39,300. This new machinery would produce estimated annual operating cash savings of $12,650. The estimated useful life of the new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value...

  • The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery....

    The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $840. One possible alternative is to invest in new machinery, which has a cost of $39,400. This new machinery would produce estimated annual operating cash savings of $12,700. The estimated useful life of the new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value...

  • The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery....

    The supervisor of the county Department of Transportation (DOT) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $830. One possible alternative is to invest in new machinery, which has a cost of $39,300. This new machinery would produce estimated annual operating cash savings of $12,650. The estimated useful life of the new machinery is four years. The DOT uses straight-line depreciation. The new machinery has an estimated salvage value...

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