■Machine A –Initial Cost = $150,000 –Pre-tax operating cost = $65,000 Expected life is 8 years...

■Machine A

–Initial Cost = $150,000

–Pre-tax operating cost = $65,000

Expected life is 8 years

■Machine B

–Initial Cost = $100,000

–Pre-tax operating cost = $57,500

–Expected life is 6 years

The machine chosen will be replaced indefinitely and neither machine will have a differential impact on revenue. No change in NWC is required.

The required return is 10%, the applicable CCA rate is 20% and the tax rate is 40%.

Which machine should you buy?

Expert Solution

Calculation for Machine A

	0	1	2	3	4	5	6	7	8
initial cost	150000	0	0	0	0	0	0	0	0
Depreciation		30000	24000	19200	15360	12288	9830.4	7864.32	6291.46
Pre tax operating cost		65000	65000	65000	65000	65000	65000	65000	65000
Post tax operating cost		39000	39000	39000	39000	39000	39000	39000	39000
Residual value									30828.1
Total CF	-150000	-39000	-39000	-39000	-39000	-39000	-39000	-39000	-8171.87
PV	-150000	-35455	-32231	-29301	-26638	-24216	-22015	-20013	-3812.24
Total CF	-343681

Machine B

	0	1	2	3	4	5	6
initial cost	100000	0	0	0	0	0	0
Depreciation		20000	16000	12800	10240	8192	6553.6
Pre tax operating cost		57500	57500	57500	57500	57500	57500
Post tax operating cost		34500	34500	34500	34500	34500	34500
Residual value							26214.4
Total CF	-100000	-34500	-34500	-34500	-34500	-34500	-8285.6
PV	-150000	-31363.6	-28512.4	-25920.4	-23564	-21421.8	-4677.01
Total CF	-285459

So, Machine A is should be purchased. As yearly expenses is 42K but in Machine B is 47K.

jeff jeffy answered 1 month ago

A central air conditioning unit was installed at an initial cost of $65,000 and was expected...

A central air conditioning unit was installed at an initial cost of $65,000 and was expected to have a salvage value of $5,000 after a service life of 12 years. a) What amount had accumulated in a straight-line depreciation reserve at the end of the 5th year? b) Using double declining balance depreciation, determine the book value at the end of the 9th year. c) If the equipment was sold in the 6th year for $10,000, what sunk cost would...

1.A company buys a machine for $75,000 that has an expected life of 8 years and...

1.A company buys a machine for $75,000 that has an expected life of 8 years and no salvage value. The company uses straight-line depreciation. The company anticipates a yearly net income of $3,600 after taxes of 24%, with the cash flows to be received evenly throughout each year. What is the accounting rate of return? 2.If Management was not concerned with the time value of money, from which two capital budgeting methods should they choose? 3. Vextra Corporation is considering...

A loader has an initial cost of $154,000 and an estimated useful life of 8 years....

A loader has an initial cost of $154,000 and an estimated useful life of 8 years. The salvage value after 8 years of use is estimated to be $10,000. a. What is the annual depreciation amount if the straight-line method of depreciation accounting is used? b. What is the book value after 6 years if the straight-line method of depreciation accounting is used? c. What is the annual depreciation amount in the fifth year if the sum-of-the-years method of depreciation...

A new project has an intial cost of $480,000 with an expected life of 8 years.

A new project has an intial cost of $480,000 with an expected life of 8 years. The project is expected to have earnings before depreciation and taxes of $125,000 per year. If the projected is being depreciated over a 3-year term and the firm’s tax rate is 40%, calculate the cashflows of the project over its estimated life.

A new machine will cost $150,000 to place into operation. It is expected to have yearly...

A new machine will cost $150,000 to place into operation. It is expected to have yearly cash flows of $50,000 for the first five years. The company required rate of return is 9%. 1. Compute the Project's NPV. 2. Compute the Project's IRR. 3. How long is the project's payback period? 4. How long is the project's discounted payback period?

A machine was purchased at fair market price for $43,000 and is expected to have a deprecible life of 8 years.

A machine was purchased at fair market price for $43,000 and is expected to have a deprecible life of 8 years.a] Using the straight-line method, what are the depreciation amounts for each of the next 8 years? Assume for this particular book depreciation method that the asset will have an expected salvage value of $2,800 at the end of the depreciable life.b] If the double-declining balance (200 % DB) method is used, what are the depreciation amounts for the next...

on 1 January co purchase a machine with cost of 150000 expected life of 5 years...

on 1 January co purchase a machine with cost of 150000 expected life of 5 years and residual value of 5000 use double declinifn compute annual deprecition accumulated dep and ending book of first 2 yeara

You are considering the purchase of a machine with an expected life of 3 years. It...

You are considering the purchase of a machine with an expected life of 3 years. It costs $800,000 and belongs to class 10 (CCA rate = 30%). Its estimated market value at the end of 3 years equals $125,000. The number of products you expect to sell over the next 3 years is 20,000, 25,000 and 20,000 in years 1, 2 and 3, respectively. Expected selling price per unit is $100 while annual production costs consist of $50,000 in fixed...

Your Company purchased a machine with an estimated useful life of 8 years. The machine will...

Your Company purchased a machine with an estimated useful life of 8 years. The machine will generate cash inflows of $96,000 each year. The salvage value at the end of the project is $80,000. Your Company's discount rate is 6%. The net present value of the investment is ($7,500). What is the purchase price of the machine?

“Austin Jack Inc.” is considering the following machines Machine A Cost $500,000 Expected Life 6 years...

“Austin Jack Inc.” is considering the following machines Machine A Cost $500,000 Expected Life 6 years CF/Year $220,000 Machine B Cost $260,000 Expected Life 3 years CF/Year $200,000 Assume that the cost of capital is 12 percent. 15. What is the NPV for project A? * A. $380,605 B. $404,510 C. $905,215 D. $510,000 E. None of the above 16. What is the NPV for project B? * A. $220,366 B. $480,366 C. $740,366 D. $350,366 E. None of the...

Question