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In: Finance
Unequal Lives Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine....
Unequal Lives
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components (microprocessors) used in the machines.
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Assume that Filkins' cost of capital is 14%. Calculate the two projects' NPVs. Round your answers to the nearest cent.
Machine 190-3 $
Machine 360-6 $
Should the firm replace its old knitting machine, and, if so, which new machine should it use?
-
By how much would the value of the company increase if it accepted the better machine? Round your answer to the nearest cent.
$ -
What is the equivalent annual annuity for each machine? Round your answer to the nearest cent.
Machine 190-3 $ Machine 360-6 $
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new...
Filkins Fabric Company is considering the replacement of its
old, fully depreciated knitting machine. Two new models are
available: Machine 190-3, which has a cost of $190,000, a 3-year
expected life, and after-tax cash flows (labor savings and
depreciation) of $87,000 per year; and Machine 360-6, which has a
cost of $360,000, a 6-year life, and after-tax cash flows of
$98,300 per year. Knitting machine prices are not expected to rise,
because inflation will be offset by cheaper components
(microprocessors)...
Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new...
Filkins Fabric Company is considering the replacement of its
old, fully depreciated knitting machine. Two new models are
available: Machine 190-3, which has a cost of $225,000, a 3-year
expected life, and after-tax cash flows (labor savings and
depreciation) of $95,000 per year; and Machine 360-6, which has a
cost of $375,000, a 6-year life, and after-tax cash flows of
$104,500 per year. Knitting machine prices are not expected to
rise, because inflation will be offset by cheaper components
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Replacement Analysis St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has...
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St. Johns River Shipyards' welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
it is old, it is still functional as originally designed and can be
used for quite a while longer. The new welder will cost $184,000
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St. Johns River Shipyards' welding machine is 15 years old,
fully depreciated, and has no salvage value. However, even though
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used for quite a while longer. The new welder will cost $80,500 and
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