Question
In: Finance
The Best Company is reviewing two options for replacing a piece of machinery. The first machine...
The Best Company is reviewing two options for replacing a piece of machinery. The first machine costs $86,500 and has a four-year life. The second machine costs $123,000 and has a six-year life. Neither machine will have a salvage value. The machines will be replaced at the end of their life. Determine which machine to purchase? The discount rate is 20%.
Solutions
Expert Solution
Solution :
Since the life of the two machines under consideration is different , the Equivalent annual cost method should be used for making the decision.
As per the Equivalent annual cost method, the machine with the lowest equivalent annual cost should be selected or purchased.
The Equivalent annual cost of Machine 1 with life of 4 years = $ 33,414.46
The Equivalent annual cost of Machine 2 with life of 6 years = $ 36,986.92
Since Machine 1 has the lower Equivalent Annual cost of = $ 33,414.46, the same should be selected.
Hence, the machine to be purchased is Machine 1.
Please find the attached screenshot of the excel sheet containing the detailed calculation for the above solution.
jeff jeffy answered 2 years agoRelated Solutions
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,700...
Machine Replacement Decision A company is considering replacing
an old piece of machinery, which cost $600,700 and has $347,800 of
accumulated depreciation to date, with a new machine that has a
purchase price of $483,600. The old machine could be sold for
$62,100. The annual variable production costs associated with the
old machine are estimated to be $157,600 per year for eight years.
The annual variable production costs for the new machine are
estimated to be $101,200 per year for...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $598,100...
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $598,100 and has $347,800 of accumulated depreciation to
date, with a new machine that has a purchase price of $483,800. The
old machine could be sold for $62,000. The annual variable
production costs associated with the old machine are estimated to
be $158,000 per year for eight years. The annual variable
production costs for the new machine are estimated to be $101,500
per year for...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,700...
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $597,700 and has $347,700 of accumulated depreciation to
date, with a new machine that has a purchase price of $486,500. The
old machine could be sold for $64,300. The annual variable
production costs associated with the old machine are estimated to
be $155,500 per year for eight years. The annual variable
production costs for the new machine are estimated to be $100,200
per year for...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $600,700...
Machine Replacement Decision A company is considering replacing
an old piece of machinery, which cost $600,700 and has $347,800 of
accumulated depreciation to date, with a new machine that has a
purchase price of $483,600. The old machine could be sold for
$62,100. The annual variable production costs associated with the
old machine are estimated to be $157,600 per year for eight years.
The annual variable production costs for the new machine are
estimated to be $101,200 per year for...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $602,600...
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $602,600 and has $347,900 of accumulated depreciation to
date, with a new machine that has a purchase price of $484,000. The
old machine could be sold for $64,400. The annual variable
production costs associated with the old machine are estimated to
be $155,900 per year for eight years. The annual variable
production costs for the new machine are estimated to be $102,500
per year for...
Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $597,600...
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $597,600 and has $352,200 of accumulated depreciation to
date, with a new machine that has a purchase price of $484,300. The
old machine could be sold for $63,200. The annual variable
production costs associated with the old machine are estimated to
be $156,000 per year for eight years. The annual variable
production costs for the new machine are estimated to be $101,500
per year for...
4 Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost...
4
Machine Replacement Decision
A company is considering replacing an old piece of machinery,
which cost $597,400 and has $350,500 of accumulated depreciation to
date, with a new machine that has a purchase price of $485,900. The
old machine could be sold for $62,300. The annual variable
production costs associated with the old machine are estimated to
be $157,000 per year for eight years. The annual variable
production costs for the new machine are estimated to be $101,300
per year...
Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated...
Central Laundry and Cleaners is considering replacing an
existing piece of machinery with a more sophisticated machine. The
old machine was purchased 3 years ago at a cost of $ 46,800, and
this amount was being depreciated under MACRS using a 5-year
recovery period. The machine has 5 years of usable life remaining.
The new machine that is being considered costs $ 75,300 and
requires $ 4,300 in installation costs. The new machine would be
depreciated under MACRS using a...
Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated...
Central Laundry and Cleaners is considering replacing an
existing piece of machinery with a more sophisticated machine. The
old machine was purchased 3 years ago at a cost of $ 50, 300 and
this amount was being depreciated under MACRS using a 5-year
recovery period. The machine has 5 years of usable life remaining.
The new machine that is being considered costs $ 76,300 and
requires $ 3,600 in installation costs. The new machine would be
depreciated under MACRS using...
) A company wants to purchase a new machine. There two options Machine A and Machine...
) A company wants to purchase a new machine. There two options
Machine A and Machine B. The first costs of A and B are $9000 and
$11,000 respectively. Machine A has net annual benefits of $1800
for the first year and will increase by $150 every year during its
five year useful life, and the salvage value is $600. Machine B has
net annual benefits of $3200 but will decrease by $150 every year
during during each year of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- A road with a radius of 72 m is banked so that a car can navigate...
- 1) If you had not dried the solid, would the calculated percent yield have been higher,...
- Two structures of alanine can be drawn that have a net charge of zero, but the...
- Co(II) was used as an internal standard to analyze a sample of Ti(IV) with atomic absorption...
- Matlab Programming Write an M-file to read a real-valued vector of any length from the keyboard...
- TASK back to top In the contemporary management environment, mergers and acquisitions are hot topics; particularly...
- A room with 2.7-m-high ceilings has a metal plate on the floor with V = 0V...
ADVERTISEMENT