Homework Help is Here – Start Your Trial Now!
Business
Accounting
Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine Cost, 10 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses Annual product revenue Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 New Machine Cost, 6 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. Old Machine New Machine (Alt. 2) Differential (Alt. 1) Income Revenues Costs Income (Loss) 2. Which Alternative would you propose? What other factors should be considered? 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal?

Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine Cost, 10 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses Annual product revenue Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 New Machine Cost, 6 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. Old Machine New Machine (Alt. 2) Differential (Alt. 1) Income Revenues Costs Income (Loss) 2. Which Alternative would you propose? What other factors should be considered? 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal?

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...
See similar textbooks
icon
Related questions
Question

1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased.

2. Which Alternative would you propose? What other factors should be considered?

3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal? 

Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine ECost, 10 year life Annual Depreciation O Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses e Annual product revenue 3 Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 5 New Machine Cost, 6 year life Annual Depreciation 8 Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 01. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. Old Machine New Machine Differential (Alt. 1) (Alt. 2) Income 7 Revenues D Costs 5 Income (Loss) 7 2. Which Alternative would you propose? What other factors should be considered? 3 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? 1. What does this indicate of the limitations of this method for evaluating an investment proposal?
Transcribed Image Text:Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine ECost, 10 year life Annual Depreciation O Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses e Annual product revenue 3 Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 5 New Machine Cost, 6 year life Annual Depreciation 8 Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 01. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. Old Machine New Machine Differential (Alt. 1) (Alt. 2) Income 7 Revenues D Costs 5 Income (Loss) 7 2. Which Alternative would you propose? What other factors should be considered? 3 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? 1. What does this indicate of the limitations of this method for evaluating an investment proposal?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 4 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Future Value
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Survey of Accounting (Accounting I)
Survey of Accounting (Accounting I)
Accounting
ISBN:
9781305961883
Author:
Carl Warren
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS