Question

In: Finance

RELO Manufacturing has a machine replacement decision. RELO will buy one of two machines, which will...

RELO Manufacturing has a machine replacement decision. RELO will buy one of two machines, which will be replaced at the end of its life. Both machines cost $1,800. Machine A has a 4-year life, a salvage value of $800, and expenses of $525 per year and will be depreciated down to $800. Machine B has a 5-year life, a salvage value of $300, and expenses of $500 per year. Machine B will be depreciated down to a book value of $300. Assume conditions of straight-line depreciation to the salvage value, a tax rate of 35%, and a discount rate of 18%. Which machine should RELO choose and why?

Group of answer choices

Machine A because it has a lower present value of total costs

Machine B because it has a lower present value of total costs

Machine A because it has a lower EAC

Machine B because it has a lower EAC

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

A company wants to buy one of two machines: machine A or machine B. The present...
A company wants to buy one of two machines: machine A or machine B. The present worth of machine A over a life span of 3 years is $2,200 at an interest rate of 10% per year compounded annually whereas the present worth of machine B over a life span of 6 years is $ 3,500 at the same interest rate. Based on the present worth criteria, which machine should the company pick? Help can someone explain how to do...
"A company is considering two types of machines for a manufacturing process. Machine A has an...
"A company is considering two types of machines for a manufacturing process. Machine A has an immediate cost of $75,000, and its salvage value at the end of 6 years of service life is $21,000. The operating costs of this machine are estimated to be $3600 per year. Extra income taxes are estimated at $2300 per year. Machine B has an immediate cost of $43,000, and its salvage value at the end of 6 years' service is negligible. The annual...
The John Deer Company is evaluating the replacement of one of its machines. The machine was...
The John Deer Company is evaluating the replacement of one of its machines. The machine was originally purchased ten years ago at a cost of $35,000 and has been depreciated to a book value of zero. If Pioneer replaces the machine, it will be able to bid on larger projects that require the capabilities of the new machine. The new machine will cost the firm $80,000, which will be depreciated over 4 years according to the following depreciation rates: 40%...
The Computer company is evaluating the replacement of one of its machines. The machine was originally...
The Computer company is evaluating the replacement of one of its machines. The machine was originally purchased ten years ago at a cost of $35,000 and has been depreciated to a book value of zero. If Pioneer replaces the machine, it will be able to bid on larger projects that require the capabilities of the new machine. The new machine will cost the firm $80,000, which will be depreciated over 4 years according to the following depreciation rates: 40% in...
Integrativelong dash—Investment decision Holliday Manufacturing is considering the replacement of an existing machine. The new machine...
Integrativelong dash—Investment decision Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs $1.18 million and requires installation costs of $159,000.The existing machine can be sold currently for $186,000 before taxes. It is 2 years​ old, cost $803,000 ​new, and has a $385,440 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a​ 5-year recovery period and therefore has the final 4 years of depreciation remaining. If it...
Integrative—Investment decision    Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs...
Integrative—Investment decision    Holliday Manufacturing is considering the replacement of an existing machine. The new machine costs $1.27 million and requires installation costs of $159,000. The existing machine can be sold currently for $177,000 before taxes. It is 2 years​ old, cost $799,000 new, and has a $383,520 book value and a remaining useful life of 5 years. It was being depreciated under MACRS using a​ 5-year recovery period and therefore has the final 4 years of depreciation remaining. If it...
. Replacement decision The electronics company plans to replace the manually operated manufacturing machine with a...
. Replacement decision The electronics company plans to replace the manually operated manufacturing machine with a new fully automated machine. Use the following information to determine the cash flows and profitability of the replacement decision. Current situation • Current estimated wages of operators are 30,000 annually. By replacing, we can save these labour related costs. • Maintenance costs € 8,000 per year. • Waste related costs of € 10,000 per year • The machine currently in use was bought 5...
You are considering the purchase of one of two machines used in your manufacturing plant. Machine...
You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $150 initially, and then $105 per year in maintenance costs. Machine B costs $220 initially, has a life of three years, and requires $170 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. The discount rate is 13 percent and the tax rate is zero. Calculate...
Rowing Company is analyzing the replacement of one of its machines. The machine was purchased ten...
Rowing Company is analyzing the replacement of one of its machines. The machine was purchased ten years ago at a cost of $35,000 and has been depreciated to a book value of zero. If Rowing replaces the machine, it will be able to bid on larger projects that require the capabilities of the new machine. The new machine will cost the firm $50,000, which will be depreciated over 4 years according to the following depreciation rates: 30% in each of...
Rowing Company is analyzing the replacement of one of its machines. The machine was purchased ten...
Rowing Company is analyzing the replacement of one of its machines. The machine was purchased ten years ago at a cost of $35,000 and has been depreciated to a book value of zero. If Rowing replaces the machine, it will be able to bid on larger projects that require the capabilities of the new machine. The new machine will cost the firm $50,000, which will be depreciated over 4 years according to the following depreciation rates: 30% in each of...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT