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An Engineering company is considering purchasing a piece of plant equipment and wishes to compare its...
An Engineering company is considering purchasing a piece of plant equipment and wishes to compare its replacement strategies for purchase and maintenance over a period of time. The machine’s initial cost is $160,000 with immediate payment required. Running Costs including maintenance are $11,000 in year 1, $16,000 in year 2, $23,000 in year 3 and $32,000 in year 4. Payments are required at the end of each year. Interest rates are 4% p.a. The equipment will have a salvage value of $26,000 upon replacement. Should the company replace the equipment every 3 or 4 years?
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ekkarill92 answered 1 year agoRelated Solutions
An Engineering company is considering purchasing a piece of plant equipment and wishes to compare its...
An Engineering company is considering purchasing a piece of
plant equipment and wishes to compare its replacement strategies
for purchase and maintenance over a period of time. The machine’s
initial cost is $170,000 with immediate payment required. Running
Costs including maintenance are $12,000 in year 1, $17,000 in year
2, $24,000 in year 3 and $33,000 in year 4. Payments are required
at the end of each year. Interest rates are 4% p.a. The equipment
will have a salvage value...
A company is considering the purchase of a major piece of equipment for its manufacturing plant....
A company is considering the purchase of a major piece of
equipment for its manufacturing plant. The project would cost $22m
in initial investment and would result in cost savings, before tax,
of $3.25m per year for five years. The equipment could be sold for
$4.5m at the end of the five years. The equipment would also result
in an increase in NWC of $500,000, which will be recovered at the
end of the project. The company’s CCA rate is...
A company is considering the purchase of a major piece of equipment for its manufacturing plant....
A company is considering the purchase of a major piece of
equipment for its manufacturing plant. The project would cost $22m
in initial investment and would result in cost savings, before tax,
of $3.25m per year for five years.
The equipment could be sold for $4.5m at the end of the five
years. The equipment would also result in an increase in NWC of
$500,000, which will be recovered at the end of the project.
The company’s CCA rate is...
XYZ Company is considering purchasing a piece of equipment costing $400,000. It has a useful life...
XYZ Company is considering purchasing a piece of equipment
costing $400,000. It has a useful life of 4years and will be
depreciated straight-line to zero, after which it will be scrapped
for $30,000. This piece of equipment will save $150,000 per year in
pretax operating costs during its useful life but requires an
initial investment in NWC of $36,000. XYZ Company has a 21% tax
rate and a required rate of return of 12%
What is the annual Operating Cash...
Banana Inc. is considering either purchasing or leasing a $600,000 piece of specialized equipment. The equipment...
Banana Inc. is considering either purchasing or leasing a
$600,000 piece of specialized equipment. The equipment has a life
of 5 years, belongs in a 30% CCA class, and will have no residual
value. The cost of debt is is 12% for this purchase. A lease on
this equipment for 5 years is priced at $150,000 a year. Banana
Inc.'s corporate tax rate is 34%. What is Banana Inc.'s break-even
lease payment?
a) $182,968
b) 170,802
c) $109,057
d) $133,677...
DataPoint Engineering is considering the purchase of a new piece of equipment for $310,000. It has...
DataPoint Engineering is considering the purchase of a new piece
of equipment for $310,000. It has an eight-year midpoint of its
asset depreciation range (ADR). It will require an additional
initial investment of $130,000 in nondepreciable working capital.
$52,000 of this investment will be recovered after the sixth year
and will provide additional cash flow for that year. Income before
depreciation and taxes for the next six are shown in the following
table. Use Table 12–11, Table 12–12. Use Appendix...
DataPoint Engineering is considering the purchase of a new piece of equipment for $310,000. It has...
DataPoint Engineering is considering the purchase of a new piece
of equipment for $310,000. It has an eight-year midpoint of its
asset depreciation range (ADR). It will require an additional
initial investment of $130,000 in nondepreciable working capital.
$52,000 of this investment will be recovered after the sixth year
and will provide additional cash flow for that year. Income before
depreciation and taxes for the next six are shown in the following
table. Use Table 12–11, Table 12–12. Use Appendix...
DataPoint Engineering is considering the purchase of a new piece of equipment for $290,000. It has...
DataPoint Engineering
is considering the purchase of a new piece of equipment for
$290,000. It has an eight-year midpoint of its asset depreciation
range (ADR). It will require an additional initial investment of
$190,000 in nondepreciable working capital. $47,000 of this
investment will be recovered after the sixth year and will provide
additional cash flow for that year. Income before depreciation and
taxes for the next six are shown in the following table. Use Table
12–11, Table 12–12. Use Appendix...
DataPoint Engineering is considering the purchase of a new piece of equipment for $310,000. It has...
DataPoint Engineering is considering the purchase of a new piece
of equipment for $310,000. It has an eight-year midpoint of its
asset depreciation range (ADR). It will require an additional
initial investment of $130,000 in nondepreciable working capital.
$52,000 of this investment will be recovered after the sixth year
and will provide additional cash flow for that year. Income before
depreciation and taxes for the next six are shown in the following
table. Use Table 12–11, Table 12–12. Use Appendix...
DataPoint Engineering is considering the purchase of a new piece of equipment for $330,000. It has...
DataPoint Engineering is considering the purchase of a new piece
of equipment for $330,000. It has an eight-year midpoint of its
asset depreciation range (ADR). It will require an additional
initial investment of $150,000 in nondepreciable working capital.
Fifty-seven thousand dollars of this investment will be recovered
after the sixth year and will provide additional cash flow for that
year. Income before depreciation and taxes for the next six are
shown in the following table. Use Table 12–11, Table 12–12....
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