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In: Finance
Problem 11-04 Replacement Analysis Although the Chen Company's milling machine is old, it is still in...
Problem 11-04
Replacement Analysis
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $41,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $9,000 per year. It would
have zero salvage value at the end of its life. The Project cost of
capital is 12%, and its marginal tax rate is 35%.
Should Chen buy the new machine?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Problem 11-04 Replacement Analysis Although the Chen Company's milling machine is old, it is still in...
Problem 11-04
Replacement Analysis
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $41,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,900 per year. It would
have...
Replacement Analysis Although the Chen Company's milling machine is old, it is still in relatively good...
Replacement Analysis
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it.
The new milling machine, at a cost of $120,000 delivered and
installed, would also last for 10 years and would produce after-tax
cash flows (labor savings and depreciation tax savings) of $19,300
per year. It would have zero salvage...
Although the Chen Company's milling machine is old, it is still in relatively good working order...
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $41,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $8,400 per year. It would
have zero salvage value at...
Although the Chen Company's milling machine is old, it is still in relatively good working order...
Although the Chen Company's milling machine is old, it
is still in relatively good working order and would last for
another 10 years. It is inefficient compared to modern standards,
though, and so the company is considering replacing it. The new
milling machine, at a cost of $38,000 delivered and installed,
would also last for 10 years and would produce after-tax cash flows
(labor savings and depreciation tax savings) of $8,600 per year. It
would have zero salvage value at...
Although the Chen Company's milling machine is old, it is still in relatively good working order...
Although the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $112,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $19,900 per year. It would
have zero salvage value at...
Replacement AnalysisAlthough the Chen Company's milling machine is old, it is stillin relatively good...
Replacement AnalysisAlthough the Chen Company's milling machine is old, it is still
in relatively good working order and would last for another 10
years. It is inefficient compared to modern standards, though, and
so the company is considering replacing it. The new milling
machine, at a cost of $104,000 delivered and installed, would also
last for 10 years and would produce after-tax cash flows (labor
savings and depreciation tax savings) of $18,700 per year. It would
have zero salvage value...
Problem 11-13 Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for...
Problem 11-13
Replacement Analysis
The Everly Equipment Company's flange-lipping machine was
purchased 5 years ago for $100,000. It had an expected life of 10
years when it was bought and its remaining depreciation is $10,000
per year for each year of its remaining life. As older
flange-lippers are robust and useful machines, this one can be sold
for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be
purchased for $130,000, including installation costs. During...
Problem 11-13 Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for...
Problem 11-13
Replacement Analysis
The Everly Equipment Company's flange-lipping machine was
purchased 5 years ago for $90,000. It had an expected life of 10
years when it was bought and its remaining depreciation is $9,000
per year for each year of its remaining life. As older
flange-lippers are robust and useful machines, this one can be sold
for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be
purchased for $160,000, including installation costs. During...
Problem 11-13 Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for...
Problem 11-13
Replacement Analysis
The Everly Equipment Company's flange-lipping machine was
purchased 5 years ago for $90,000. It had an expected life of 10
years when it was bought and is being depreciated by the
straight-line method by $9,000 per year. As the older
flange-lippers are robust and useful machines, it can be sold for
$20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be
purchased for $130,000, including installation costs. During its
5-year life,...
Problem 11-13 Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for...
Problem 11-13
Replacement Analysis
The Everly Equipment Company's flange-lipping machine was
purchased 5 years ago for $100,000. It had an expected life of 10
years when it was bought and its remaining depreciation is $10,000
per year for each year of its remaining life. As older
flange-lippers are robust and useful machines, this one can be sold
for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be
purchased for $150,000, including installation costs. During...
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