An equipment cost $80,000 initially. The market value has been declining at the rate of $15,000...

An equipment cost $80,000 initially. The market value has been declining at the rate of $15,000 yearly. The O & M (Operating & Maintenance) costs in year 1 were $10,000 and have been increasing by $2,000 from year 2. Determine the minimum cost life of this equipment for a MARR of 10%. (A) 2 years (B) 1 Year (C) 4 Years (D) 5 Years

Expert Solution

Using excel for economic life analysis

Year	Discount factor	O&M cost	PV (O&M)	Cumulative (O&M)	Cumulative (O&M) + Initial Cost	Salvage value	PV (Salvage value)	NPV	(A/P,10%,n)	EUAC
A	B	C	*D=CB**	E	F=E+80000	G	*H=GB**	I=F-H	J	*K = IJ**
1	0.90909	10000.00	9090.91	9090.91	89090.91	65000.00	59090.91	30000.00	1.10000	33000.00
2	0.82645	12000.00	9917.36	19008.26	99008.26	50000.00	41322.31	57685.95	0.57619	33238.10
3	0.75131	14000.00	10518.41	29526.67	109526.67	35000.00	26296.02	83230.65	0.40211	33468.28
4	0.68301	16000.00	10928.22	40454.89	120454.89	20000.00	13660.27	106794.62	0.31547	33690.58
5	0.62092	18000.00	11176.58	51631.47	131631.47	5000.00	3104.61	128526.86	0.26380	33905.06
Discount factor	1/(1+0.1)^n
(A/P,i,n)	i((1 + i)^n)/((1 + i)^n-1)

Minimum EUAC is 33000 at 1 yrs

so economic life is 1 yr

Rahul Sunny answered 1 year ago

Replacing old equipment at an immediate cost of $80,000 and an additional outlay of $15,000 four...

Replacing old equipment at an immediate cost of $80,000 and an additional outlay of $15,000 four years from now will result in savings of $22,000 per year for 6 years. The required rate of return is 12% compounded annually. Compute the net present value and determine if the investment should be accepted or rejected according to the net present value criterion.

What if sales are declining and cost cutting procedures are declining a a faster rate than...

What if sales are declining and cost cutting procedures are declining a a faster rate than sales? If free cash flow is negative for one or two years would that be a signal that the company is in distress, why or why not? Need a Source Please!!!

Rod’s Prods manufactures cattle prods. The market has been declining in recent years and Rod’s has...

Rod’s Prods manufactures cattle prods. The market has been declining in recent years and Rod’s has been forced to drop its price slightly although production costs have remained the same. Operating information for the last two years is given below: 2013 2014 UNIT SALES 50,000 48,000 UNIT SELLING PRICE $15.00 $14.00 # UNITS PRODUCED (= BUDGETED) 50,000 80,000 VARIABLE MANUFACTURING COST $10.00/UNIT $10.00/UNIT FIXED MANUFACTURING COST $175,000 $175,000 Budgeted and actual production was the same in both years, budgeted production...

Charlie transfers equipment with an original cost of $100,000 and a current basis of $80,000 in...

Charlie transfers equipment with an original cost of $100,000 and a current basis of $80,000 in exchange for 50% of the stock. The equipment has a market value of $90,000. In the same transaction, Stacey transfers inventory with a market value of $90,000 and a basis of $10,000 for the other 50% of the stock What is Charlie’s basis in his stock? (2 points) What is Stacey’s basis in her stock? (2 points) Does the depreciation recapture potential of Charlie...

A company is purchasing a new equipment in Class 8 (20% CCA rate -- declining balance...

A company is purchasing a new equipment in Class 8 (20% CCA rate -- declining balance class, half year rule applicable) in 2019 for $33,000. The machine is expected to result in annual revenue of $16,000 for each of the next five years and will be sold at the end of that time for an expected salvage value of $13,000. Maintenance expenses are expected to be $1,400 for the first year and to increase by $200 per year for each...

Jackson’s Corporation purchased equipment at a cost of $500,000. The equipment has an estimated residual value...

Jackson’s Corporation purchased equipment at a cost of $500,000. The equipment has an estimated residual value of $50,000 and an estimated life of 5 years, or 10,000 hours of operation. The equipment was purchased on January 1, 2020 and was used 2,500 hours in 2020 and 2,100 hours in 2021. On January 1, 2022, the company decided to sell the equipment for $315,000. Jackson’s Corporation uses the units-of- production method to account for the depreciation on the equipment. 1.) Will...

Trainor Corporation purchased equipment at a cost of $500,000. The equipment has an estimated residual value...

Trainor Corporation purchased equipment at a cost of $500,000. The equipment has an estimated residual value of $50,000 and an estimated life of 5 years, or 10,000 hours of operation. The equipment was purchased on January 1, 2020 and was used 2,500 hours in 2020 and 2,100 hours in 2021. On January 1, 2022, the company decided to sell the equipment for $315,000. Trainor Corporation uses the units-of- production method to account for the depreciation on the equipment. Based on...

The Darlington Equipment Company purchased a machine 5 years ago at a cost of $80,000. The...

The Darlington Equipment Company purchased a machine 5 years ago at a cost of $80,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,000 per year. If the machine is not replaced, it can be sold for $5,000 at the end of its useful life. A new machine can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash...

Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management...

Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $26.5 million; fair value of division’s assets, $21 million; sum of estimated future cash flows generated from the division’s assets, $24 million. What amount of impairment loss should C&R recognize?

A company purchases a piece of equipment for $15,000. After nine years, the salvage value is...

A company purchases a piece of equipment for $15,000. After nine years, the salvage value is $900. The annual insurance cost is 5% of the purchase price, the electricity cost is $600/yr, and the maintenance and replacement parts cost is $120/yr. The nominal annual interest rate is 9.6%, compounded monthly. Neglecting taxes, what is most nearly the present worth of the equipment if it is expected to earn the company $4500 per year? $2300 $2800 $3200 $3500

Question