Our company must replace an obsolete machine press. We have two bids, summarized below, to consider....

Our company must replace an obsolete machine press. We have two bids, summarized below, to consider. Machine A is depreciated using MACRS. Machine B is depreciated using SOYD. Machine A will be sold for $5000 at the end of its useful life and machine B will be sold for $10,000 at the end of its useful life. Our company uses an after-tax MARR of 12% and it falls in the 38% total income tax bracket. Our company is required to purchase one of these two machines, do nothing is not an option.

	Machine A	Machine B
Useful Life (years)	5	5
Initial Cost	$75.000	$76,000
Annual O & M	$62,000	$70,000
Annual Revenue	$82,000	$85,000
Salvage Value	0	$5,000

Based on the After Tax Cash Flow and using a Net Present Worth analysis and considering taxes which machine should our company purchase?

Expert Solution

Machine A:

Year	Net Annual Rev	dep (macrs)	ibt	iat *(1-0.38)	cash flow	dis 12%	PV
0	-75000				-75000	1	-75000
1	20000	15000	5000	3100	18100	0.893	16163
2	20000	24000	-4000	5520	29520	0.797	23527
3	20000	14250	5750	3565	17815	0.712	12684
4	20000	9000	11000	6820	15820	0.636	10062
5	20000	8250	11750	7285	15535	0.567	8808
Salvage			5000	3100	3100	0.567	1758
						NPW=	-1997.42



Machine B:

Year	Net Annual Rev	dep(soyd)	ibt	iat *(1-0.38)	cash flow	dis 12%	PV
0	-76000				-76000	1	-76000
1	15000	22000	-7000	9660	31660	0.893	28272
2	15000	17600	-2600	3588	21188	0.797	16887
3	15000	13200	1800	1116	14316	0.712	10193
4	15000	8800	6200	3844	12644	0.636	8042
5	15000	4400	10600	6572	10972	0.567	6221
Salvage			10000	6200	6200	0.567	3515
						NPW=	-2869.68

As both the machine is presenting a negative NPV, so none of the machine is recommended to purchase.

ekkarill92 answered 1 year ago

The Oviedo Company is considering the purchase of a new machine to replace an obsolete one....

The Oviedo Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 10 years. The proposed replacement machine will perform the operation so much more efficiently that Oviedo's engineers estimate that it will produce after-tax cash flows (labor savings and depreciation) of $9,000 per year....

eBook The Oviedo Company is considering the purchase of a new machine to replace an obsolete...

eBook The Oviedo Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero. However, the machine is in good working order and will last at least another 10 years. The proposed replacement machine will perform the operation so much more efficiently that Oviedo's engineers estimate that it will produce an increase in after-tax cash flows (labor savings and depreciation)...

"Your firm must decide if and when to replace an existing machine. Consider the following information....

"Your firm must decide if and when to replace an existing machine. Consider the following information. Defender: The defender has a current market value of $13,000. Its operating costs over the next year are estimated to be $3,900 and increase by 35% each year. The salvage value is expected to decrease by 40% each year. Challenger: If and when your firm purchases the challenger, the challenger will cost $24,700 and have operating costs of $2,500 in its first year of...

A company needs $48,000 in 4 years to replace two trucks. Find the amount it must...

A company needs $48,000 in 4 years to replace two trucks. Find the amount it must deposit at the end of each quarter in a fund earning 6% compounded quarterly.

1.) Our company has reviewed the utilities bills for our company. We have determined that the...

1.) Our company has reviewed the utilities bills for our company. We have determined that the highest and lowest bills were $5,600 and $3,200 for the months of January and September. If we produced 1,200 and 600 units in these months, what was the fixed cost associated with the utilities bill? Group of answer choices $512.00 $560.00 $620.00 $800.00 2.) Which of the following is true? Group of answer choices An increase in sales price per unit decreases the contribution...

1. We have two potential designs for the homepage of our website, but we don’t know...

1. We have two potential designs for the homepage of our website, but we don’t know which one to use. The CEO likes one, and the CRO (Chief Revenue Office) likes another. Half the company likes one, and the other half of the company likes the other. Which one should we use? 2. Let's say you have an Excel spreadsheet with 10,000 leads from a few months back -- long enough that those leads' sales cycle has passed. The file...

We have a line of credit with a local bank that our company uses for purchasing...

We have a line of credit with a local bank that our company uses for purchasing inventory. Suppose I use this credit source to buy a new motorcycle for my personal use without the bank's knowledge. Which of the following problems describes this situation? A. Securities fraud B. Tax evasion C. Adverse selection D. Moral hazard

For the past two (2) weeks we have had to adjust our lives to address the...

For the past two (2) weeks we have had to adjust our lives to address the Covid-19 virus. Businesses, schools, governments, and institutions have had to adjust their operating approaches. This is a change in the business environment we spoke of during our first weeks together. Unexpected, unanticipated and with significant impact on the economy. How are business and government leaders responding? What are the possible impacts on businesses, citizens and the economy as a result of their decisions? Now,...

You own a car rental company, and you have two options to replace your fleet. For...

You own a car rental company, and you have two options to replace your fleet. For each car, you can either enter into a five-year lease for $7,000 per year (pretax) or you can purchase the car for $30,000. You believe the cars will last for 8 years and be worth $4,000 at the end of the 8 years. The lease payments cover maintenance costs, but if you buy the cars, you will pay $1,200 per year (pre-tax) for a...

Consider a factory that must have an air cleaner that is mandated by law. There are two choices:

Consider a factory that must have an air cleaner that is mandated by law. There are two choices:• The “Cadillac cleaner” costs $4,000 today, has annual (after-tax) operating costs of $100, andlasts 10 years.• The “Cheapskate cleaner” costs $1,000 today, has annual (after-tax) operating costs of $500,and lasts 5 years.• the after-tax salvage value of “Cadillac Cleaner” is $500, and the after-tax salvage value of“Cheapskate Cleaner” is also $500.Assuming a 10% discount rate, which cleaner should we choose? Please show...

Question