Question

In: Finance

Compute the Equivalent Annual Cost for the two machines described below. Assume that both do identical...

Compute the Equivalent Annual Cost for the two machines described below. Assume that both do identical jobs, both will be depreciated using the straight line method to zero salvage value, will have zero scrap value at the end of their useful lives. Use a 10% discount rate and a 30% tax rate.

Machine A
Useful life 7 years
Initial cost $70,000
Annual operating costs $5,000 after-tax

Machine B
Useful life 4 years
Initial cost $30,000
Annual operating costs $8,000 after-tax

Important::
This is a multiple Answer question. Choose all correct answers.

Group of answer choices

The Equivalent Annual Cost of Machine A is $14,378

The Equivalent Annual Cost of Machine A is $16,378

The Equivalent Annual Cost of Machine A is $19,378

The Equivalent Annual Cost of Machine B is $9,464

The Equivalent Annual Cost of Machine B is $15,214

The Equivalent Annual Cost of Machine B is $17,464

Expert Solution

Machine A

Time line		0	1	2	3	4	5	6	7



Cost of new machine		-70000

=Initial Investment outlay		-70000

										100.00%




Depreciation	Cost of equipment/no. of years		-10000	-10000	-10000	-10000	-10000	-10000	-10000	0	=Salvage Value




=after tax operating cash flow			-5000.00	-5000.00	-5000	-5000	-5000	-5000	-5000





+Tax shield on salvage book value	=Salvage value * tax rate								0
=Terminal year after tax cash flows									0

Total Cash flow for the period		-70000	-5000.00	-5000.00	-5000.00	-5000	-5000	-5000	-5000
Discount factor=	(1+discount rate)^corresponding period	1	1.1	1.21	1.331	1.4641	1.61051	1.771561	1.9487171
Discounted CF=	Cashflow/discount factor	-70000	-4545.454545	-4132.231405	-3756.574005	-3415.1	-3104.607	-2822.37	-2565.79059
NPV=	Sum of discounted CF=	-94342.09

Year or period		0	1	2	3	4	5	6	7
EAC			-19378.38414	-19378.38414	-19378.38414	-19378	-19378.38	-19378.38	-19378.3841
Discount factor=	(1+discount rate)^corresponding period		1.1	1.21	1.331	1.4641	1.61051	1.771561	1.9487171
Discounted CF=	Cashflow/discount factor		-17616.71285	-16015.1935	-14559.26682	-13236	-12032.45	-10938.59	-9944.17514
NPV=	-94342.09
EAC is equivalent yearly CF with same NPV =	-19378.38414

Machine B

Year or period		0	1	2	3	4
EAC			-17464.12298	-17464.12298	-17464.12298	-17464
Discount factor=	(1+discount rate)^corresponding period		1.1	1.21	1.331	1.4641
Discounted CF=	Cashflow/discount factor		-15876.47544	-14433.15949	-13121.05408	-11928
NPV=	-55358.92
EAC is equivalent yearly CF with same NPV =	-17464.12298

jeff jeffy answered 3 weeks ago

Compute the equivalent units for direct materials and conversion costs. 2. Compute the cost per equivalent...

Compute the equivalent units for direct materials and conversion costs. 2. Compute the cost per equivalent unit. 3. Assign the costs to units completed and transferred out and ending work in process inventory. 4. Record the journal entry for the costs transferred out of the Assembly Department to the Testing Department. 5. Post all of the transactions in the "Work in Process Inventory—Assembly" T-account. What is the ending balance? Data: Units in beginning Work in Process (WIP) inventory 120,000 units...

Assume that the yield curve is as given below. Assume semi-annual compounding. Compute the par rates...

Assume that the yield curve is as given below. Assume semi-annual compounding. Compute the par rates out to two years at semiannual intervals. T (in years) r(T) 0.50 0.047502 1.00 0.050016 1.50 0.052508 2.00 0.054751 Hint: Compute discount factors from the yield curve using the formula from class. Then, use the formula for par yields C(T) from part 1) above. Note! The formula gives you a decimal number, i.e. a number like 0.031875. This number means 3.1875%. 1) Calculate the...

Assume that two firms are operating with identical cost schedules, but one firm is in a...

Assume that two firms are operating with identical cost schedules, but one firm is in a perfectly competitive industry, and the other is in a monopolistically competitive industry. - a. Using two correctly labeled graphs, show the long run equilibrium price and output levels for each of these two firms. - b. Compare the long run equilibrium price and output levels for these two firms. - c. What level of economic profit will each firm earn in the long run?...

Data for two machines P and Q are as shown below. At what MARR will both...

Data for two machines P and Q are as shown below. At what MARR will both machines be equally attractive for installation? Machine P Machine Q Initial cost $160,000 $315,000 Life in years 4 6 Inflation per year (for all costs) 3.00% Benefit increase per year 6.00% MARR per year compounded yearly 14.00% Project life in years 12 First year estimated costs $43,200 $72,450 First year estimated benefits $83,200 $129,150 Salvage value of machine (% of initial cost) 13.50% 10.00%...

Compute the cost per equivalent unit for direct materials and conversion for the month.

Perrette Motor Company rebuilds automobile engines that have been damaged or are in need of extensive repair. The rebuilt engine has a 100,000-mile warranty and is purchased by auto shops, large motor pools in companies and governmental units, and some individual auto owners. The plant in Dayton, Ohio, specializes in the Ford V6 engine. Approximately 1,140 to 1,340 engines are rebuilt each month, and the costs of the plant are assigned to monthly production using weighted-average process costing. The current...

1. Compute the direct materials cost per equivalent unit for April.

During April, the first production department of a process manufacturing system completed its work on 350,000 units of a product and transferred them to the next department. Of these transferred units, 70,000 were in process in the production department at the beginning of April and 280,000 were started and completed in April. April's beginning inventory units were 60% complete with respect to materials and 40% complete with respect to conversion. At the end of April, 92,000 additional units were in...

Compute the cost per equivalent unit for materials, for labour, for overhead, and in total.

Ainsley Industries uses the weighted-average method in its process costing system. Data for the Assembly Department for May appear below: Materials Labour Overhead Work in process, May 1 $28,000 $22,000 $117,500 Cost added during May $52,000 $18,500 $63,600 Equivalent units of production 1,500 800 1,200 Required Compute the cost per equivalent unit for materials, for labour, for overhead, and in total.

What does the RISC-V code below do? Write the C equivalent. Assume that i is in...

What does the RISC-V code below do? Write the C equivalent. Assume that i is in register x5 and that the base address of array A that holds doubleword integers is in x20. addi x5, x0, 0 addi x6, x0, 50 addi x28, x20, 0 loop: bge x5, x6, end ld x7, 0(x28) bge x7, x0, next sub x7, x0, x7 sd x7, 0(x28) next: addi x5, x5, 1 addi x28, x28, 8 jal x0, loop end: Can you rewrite...

Assuming a semi-annual interest payment, determine both the bond-equivalent and annual effective annual yield

Assuming a semi-annual interest payment, determine both the bond-equivalent and annual effective annual yield (to two significant digits) of a bond whose current price is $972, a coupon rate of 7%, a face value of $1000 and with a maturity of 15 years.

The construction costs and annual maintenance costs of two MSRs are given below. Using equivalent uniform...

The construction costs and annual maintenance costs of two MSRs are given below. Using equivalent uniform annual cost (EUAC) analysis, which alternative would you recommend? Assume 7% interest and infinite life. Alternative A Alternative B Construction cost $25M $50M Annual maintenance costs $3.5M $2.0M Group of answer choices Alternative A because its EUAC is $5.25M Alternative A because its EUAC is $5.5M Alternative B because its EUAC is $5.25M Alternative B because its EUAC is $4.8M