Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 20P
To determine
To analysis:
Whether to purchase the automated welding machine or not.
Expert Solution
Answer to Problem 20P
Solution:
No, it is not advisable to purchase the automated welding machine.
Explanation of Solution
On the basis of
The net present value of the automated machine will be calculated as under −
The present value of
Given,
- Cost of machine = $ 250,000
- Software and installation = $ 80,000
- Salvage value of old machine = $ 12,000
- Replacement parts cost in year 3 = $ 45,000
| Total Present value of | ||
| Cost of machine | 250,000 | |
| Software and installation | 80,000 | |
| Less: Salvage value of old machine | -12,000 | |
| Present value of replacement of parts | ||
| Replacement parts cost | 45,000 | |
| PVIF @ 16 % for 4 year | 0.552 | 24,840 |
| Total Present value of cash out flows | 342,840 |
The total present value of cash outflows = $ 342,840.
Now, the present value of cash inflows will be calculated as −
Given,
- Annual net savings from year 1 to 6 = $ 78,500
- Salvage value of new machine at the year of year 6 = $ 20,000
| Total present value of Cash Inflows | |||
| Year | PVIF @ 16 % (2) | Present value of | |
| 1 to 6 | Annual net savings = $ 78,500 | 3.685 | 289,272.50 |
| 6 | Salvage value = $ 20,000 | 0.410 | 8,200 |
| Total present value of Cash Inflows | 297,472.50 |
The present value of cash inflows = $ 297,472.50.
Now, the net present value of automated welding machine will be calculated as under −
Given,
The net present value is = - $ 45,367.50 i.e., negative, so it is not advisable to purchase the automated welding machine.
Note: PVIF values are taken from the charts provided.
Conclusion
Thus, it is not advisable to purchase the automated welding machine.
Requirement 3
To determine
To compute:
Minimum dollar value per year to make the new welding machine as acceptable investment.
Expert Solution
Answer to Problem 20P
Solution:
Minimum dollar value per year to make the new welding machine as acceptable investment = $ 12,311.40
Explanation of Solution
The minimum dollar value per year to make new welding machine as acceptable investment will be calculated as under −
Given,
- Net present Value of welding machine = - $ 45,367.50
- PVAF @ 16 % for 6 years = $ 3.6853
The machine should provide at least a benefit of $ 12,311.40 per year to make it acceptable.
Conclusion
Thus, the minimum dollar value per year to make the new welding machine as acceptable investment has been calculated.
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give me the right answer only ASAP
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1.4 million; the new one will cost $1.7 million. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $325,000 after five years.
The old computer is being depreciated at a rate of $281,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $450,000; in two years, it will probably be worth $130,000. The new machine will save us $315,000 per year in operating costs. The tax rate is 22 percent, and the discount rate is 12 percent.
a-1.
Calculate the EAC for the old and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
a-2.
What is the NPV of the decision to…
ces
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $4.3 million, has a
20-year life, and will have zero salvage value. If the system is implemented, the company will save $640,000 per year in direct labor
costs. The company requires a 12% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s)
from the tables provided.)
a. Compute the proposed investment's net present value.
b. Using the answer from part a, is the investment's internal rate of return higher or lower than 12%? Hint: It is not necessary to
compute IRR to answer this question.
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the proposed investment's net present value.
Net present value
Chapter 12 Solutions
Introduction To Managerial Accounting
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