Question

In: Accounting

Deriving cash flows for asset disposition. Custom Machining Company (CMC) purchased a made-to-order machine tool for...

Deriving cash flows for asset disposition. Custom Machining Company (CMC) purchased a made-to-order machine tool for grinding machine parts. The machine costs $160,000, and CMC installed it yesterday. Today, a vendor offers a machine tool that will do exactly the same work but costs only $80,000. Assume that the cost of capital is 12 percent, that both machines will last five years, that CMC will depreciate both machines on a straight-line basis for tax purposes with no salvage value, that the income tax rate is and will continue to be 40 percent, and that CMC earns sufficient income that it can offset any loss from disposing of or depreciating the ‘‘old’’ machine against other taxable income. How much, at a minimum, must the ‘‘old’’ machine fetch upon resale at this time to make purchasing the new machine worthwhile?

Solutions

Expert Solution


Related Solutions

ASSET DEPRECIATION AND DISPOSITION SMS Corporation purchased a new machine for $93,600 on January 1, 20Y1....
ASSET DEPRECIATION AND DISPOSITION SMS Corporation purchased a new machine for $93,600 on January 1, 20Y1. At that time, SMS expected to use the machine for 10 years and then sell it for $9,360. The machine was sold on June 30, 20Y2, incurring a loss on sale of $2,964. SMS used straight-line depreciation. Show the impacts of the above transaction on the financial statements of SMS for 20Y2. List account names or descriptions in the first column and amounts in...
Layton Machining Company (LMC) manufactures two versions of a basic machine tool. One version is a...
Layton Machining Company (LMC) manufactures two versions of a basic machine tool. One version is a standard model and one is a custom model, which requires some additional work and slightly higher-grade materials. The manufacturing process at LMC requires that each product go through two departments, Grinding and Finishing. The process in each department uses a single type of machine. Total machine capacity in Grinding is 51,000 hours, and in Finishing, total machine capacity is 31,000 hours. (Each department has...
A machine can be purchased today for $1 million. It will generate cash flows of $200,000...
A machine can be purchased today for $1 million. It will generate cash flows of $200,000 at the end of each year for 10 years. However, a $300,000 overhaul will be required at the end of year 5. At a 10% opportunity cost of money, compute the net present value of this investment.
If Hammer Time Inc purchased a different machine for $2,702,072 the Net Cash Flows would be...
If Hammer Time Inc purchased a different machine for $2,702,072 the Net Cash Flows would be as follows: Year Net Cash Flow 1 $777,202.22 2 $772,102.22 3 $820,720.77 4 $977,121.72 5 $1,072,271.00 What is the Net Present Value if the interest rate was 7.02%? Attach work on last question This question is worth 12 total points $721,027.02 $876,543.21 $999,999.99 $1,427,453.26
Kaizen Costing Gordon Company produces custom-made machine parts. A setup activity is required for the batches...
Kaizen Costing Gordon Company produces custom-made machine parts. A setup activity is required for the batches of parts that it produces. Activity output is measured using setup hours. The value-added standard (SQ) for this activity is zero. On July 1, at the beginning of the fiscal year, 18 setup hours were allowed and used per batch. The standard wage rate for setup labor is $17 per setup hour. During the first quarter of the new fiscal year, the company is...
Vines Ltd produces custom machine parts on a job order basis. The company has two direct...
Vines Ltd produces custom machine parts on a job order basis. The company has two direct product cost categories: direct materials and direct labour. In the past, indirect manufacturing costs were allocated to products using a single indirect cost pool, allocated based on direct labour hours. The indirect cost rate was $115 per direct labour hour. The managers of Vines Ltd decided to switch from a manual system to software programs that release materials and signal machines when to begin...
Gruman Company purchased a machine for $198,000 on January 2, 2019. It made the following estimates:...
Gruman Company purchased a machine for $198,000 on January 2, 2019. It made the following estimates: Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000 In 2019, Gruman uses the machine for 2,000 hours and produces 50,000 units. In 2020, Gruman uses the machine for 1,200 hours and produces 32,000 units. If required, round your final answers to the nearest dollar. Required: Compute the depreciation for 2019 and 2020 under each of the following methods:...
Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the...
Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the following estimates: Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000 In 2016, Gruman uses the machine for 1,700 hours and produces 45,000 units. In 2017, Gruman uses the machine for 1,200 hours and produces 32,000 units. If required, round your final answers to the nearest dollar. If Gruman used a service life of 8 years or 15,000 hours...
Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the...
Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the following estimates: Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000 In 2016, Gruman uses the machine for 2,000 hours and produces 40,000 units. In 2017, Gruman uses the machine for 1,400 hours and produces 32,000 units. If required, round your final answers to the nearest dollar. Required: Compute the depreciation for 2016 and 2017 under each of the...
Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the...
Depreciation Methods Gruman Company purchased a machine for $198,000 on January 2, 2016. It made the following estimates: Service life 5 years or 10,000 hours Production 180,000 units Residual value $ 18,000 In 2016, Gruman uses the machine for 2,000 hours and produces 40,000 units. In 2017, Gruman uses the machine for 1,400 hours and produces 32,000 units. If required, round your final answers to the nearest dollar. Required: Compute the depreciation for 2016 and 2017 under each of the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT