Reference no: EM133112728
As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $54,500. Its operating costs are $20,600 a year, but at the end of five years, the machine will require a $19,700 overhaul (which is tax deductible). Thereafter, operating costs will be $30,300 until the machine is finally sold in year 10 for $5,450.
The older machine could be sold today for $25,300. If it is kept, it will need an immediate $21,500 (tax-deductible) overhaul. Thereafter, operating costs will be $32,000 a year until the machine is finally sold in year 5 for $5,450.
Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 9%.
a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
|
|
Equivalent Annual Cost
|
|
Sell New Machine
|
|
|
Sell Old Machine
|
|
b. Which machine should United Automation sell?
0 Sell Old Machine
0 Sell New Machine
|
What is the break-even cost of capital
: A project that has a cost of $12,000 is expected to have $6,000 free cash flow each year for the next 4 years. What is the break-even cost of capital?
|
|
Corporations in the consumer finance services industry
: B) After reading this lesson, can you now explain why corporations in the Consumer Finance Services Industry have the highest debt-to-equity ratio, while firms
|
|
What are the capital balances of each partner
: The capital accounts of John Smith and Bill Wilson have balances if $140,000 and $90,000 respectively. What are the capital balances of each partner
|
|
Dealing with domestic or foreign supplier
: We are dealing with domestic or foreign supplier, complexity that surrounds worldwide sourcing underscores the need to understand expansive set of cost elements
|
|
Calculate the equivalent annual costs for selling
: As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function b
|
|
Determining the book value of the bond
: A $11,000 bond that has a coupon rate of 5.80% payable semi-annually and maturity of 6 years was purchased when the yield was 4.50% compounded semi-annually.
|
|
What would be the amount of sales dollars at the break-even
: Wallace, Inc., prepared the following budgeted data based on a sales forecast of $6,000,000: What would be the amount of sales dollars at the break-even
|
|
Entering industry in competition with incumbent firm
: We consider a sequential-move game in which an entrant is considering entering an industry in competition with an incumbent firm
|
|
Considering importing toys from holland
: You are considering importing toys from Holland. In order to start your business, you will have to make a $1 million investment. The expected cash flows generat
|