Excel Applications for Accounting Principles
4th Edition
ISBN: 9781111581565
Author: Gaylord N. Smith
Publisher: Cengage Learning
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Chapter 9, Problem 1R
Dunedin Drilling Company recently acquired a new machine at a cost of $350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of $30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4.
Dunedin buys equipment frequently and wants to print a depreciation schedule for each assetʼs life. Review the worksheet called DEPREC that follows these requirements. Since some assets acquired are
Expert Solution & Answer
To determine
Prepare a worksheet showing the depreciation schedules for the new machine.
Explanation of Solution
Prepare a worksheet showing the depreciation schedules for the new machine:
Table (1)
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The Erley Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase, and an expected salvage value of $10,000 at the end of the 10 years. It is being depreciated by the straight-line method toward a salvage value of $10,000, or by $9,000 per year. Anew machine can be purchased for $150,000, including installation costs. During its 5- year life, it will reduce cash operating expenses by $50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life so the applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. The old machine can be sold today for $65,000. The firm’s tax rate is 35 percent. The appropriate discount rate is 16 percent.
d. What is the NPV of this project?
e.…
The Erley Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase, and an expected salvage value of $10,000 at the end of the 10 years. It is being depreciated by the straight-line method toward a salvage value of $10,000, or by $9,000 per year. Anew machine can be purchased for $150,000, including installation costs. During its 5- year life, it will reduce cash operating expenses by $50,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life so the applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. The old machine can be sold today for $65,000. The firm’s tax rate is 35 percent. The appropriate discount rate is 16 percent.
a. If the new machine is purchased, what is…
An injection moulding machine was purchased 2 years ago. The machine has been depreciated on a straight-line basis with $500 salvage value, and it has 6 years of remaining life. Its current book value is $2,600, and it can be sold for $3,000 at this time.
Assume, for ease of calculation, that the annual depreciation expense is $350 per year. The firm is offered a replacement machine which has a cost of $8,000 an estimated useful life of 6 years, and an estimated salvage value of $800. This machine falls into the MACRS 5-year class (20%, 32%, 19%, 12%, 12%, 5%).
The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; even so, the new machine would cause operating expenses to decline by $1,500 per year. The machine would require that inventories be increased by $2,000 but accounts payable would simultaneously increase by $500. The firm’s marginal federal-plus-state tax rate is 40 percent, and its cost of capital is 15 percent. Should it replace…
Chapter 9 Solutions
Excel Applications for Accounting Principles
Ch. 9 - Dunedin Drilling Company recently acquired a new...Ch. 9 - Open the file DEPREC from the website for this...Ch. 9 - In the space below, prepare the journal entry to...Ch. 9 - To test your formulas, assume the machine...Ch. 9 - A truck was recently purchased for 75,000 with a...Ch. 9 - Dunedin Drilling Company recently acquired a new...
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