ACC - Two replacement machines are described below to replace a current
Question # 00022347
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Updated on: 08/07/2014 12:35 PM Due on: 08/14/2014
Question
Two replacement machines are described below to replace a current one that has no salvage value. The current machine must be replaced and the replacement will not have any effect on quantity produced or sold, revenue, or S.G.& A. (except depreciation). The cost of the replacement machine will be depreciated using 5-year MACRS. The project evaluation time span should be 6 years.
Machine A, while less expensive, only has a life span of 3 years Therefore it will have to be replaced at the end of year 3. Therefore its investment will be incurred both in year 0 and in year 3. Its salvage value will be received when replaced.
Machine B is more expensive but will last 6 years and has a lower annual operating costs.
All cost information is listed below. Performa a financial analysis to compare the alternatives.
Data block
MARR= 13.00%
Income Tax rate 18.00%
Capital Gains rate 15.00%
Time span 6 years
Machine A B
Purchase Cost $70,000 $150,000
Salvage Value $5,000 $30,000
Annual COGS $8,500 $5,000
5-year MACRS Year 1 2 3 4 5 6
Percentage 20% 32% 19.20% 11.52% 11.52%5.76%
Two replacement machines are described below to replace a current one that has no salvage value. The current machine must be replaced and the replacement will not have any effect on quantity produced or sold, revenue, or S.G.& A. (except depreciation). The cost of the replacement machine will be depreciated using 5-year MACRS. The project evaluation time span should be 6 years.
Machine A, while less expensive, only has a life span of 3 years Therefore it will have to be replaced at the end of year 3. Therefore its investment will be incurred both in year 0 and in year 3. Its salvage value will be received when replaced.
Machine B is more expensive but will last 6 years and has a lower annual operating costs.
All cost information is listed below. Performa a financial analysis to compare the alternatives.
Data block
MARR= 13.00%
Income Tax rate 18.00%
Capital Gains rate 15.00%
Time span 6 years
Machine A B
Purchase Cost $70,000 $150,000
Salvage Value $5,000 $30,000
Annual COGS $8,500 $5,000
5-year MACRS Year 1 2 3 4 5 6
Percentage 20% 32% 19.20% 11.52% 11.52%5.76%
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Rating:
/5
Solution: ACC - Two replacement machines Solution