Depreciation tax benefits

Assignment Help Operation Management
Reference no: EM131152416

We can continue to use an existing machine at a cost of $22,500 annually (after-tax cash basis, including depreciation tax benefits) for the next 4 years. Alternatively, we can purchase a new machine that has an expected life of 7 years for $45,000. The new machine is expected to cost $11,000 each year to operate (after-tax cash basis, including depreciation tax benefits). The new machine will reduce inventory needs by $5,000 starting immediately. This is a one-time reduction in inventory that will last for the entirety of the new machine's life. This reduction in inventory will be reversed at the end of 7 years. The cost of capital is 14%. The existing machine has no salvage value and we estimate that the new machine's salvage value will be 0 in 7 years. Should we purchase the new machine? In the box below, indicate your decision to replace or not replace, and provide support for your answer (i.e., indicate the criteria used to make the decision and the values for that criteria). 

Additional facts for this question:

  • The existing machine has been fully depreciated.
  • As stated, the $22,500 and $11,000 are annual after-tax cash operating costs (i.e., after-tax cash operating costs = net income + depreciation), thus no further adjustments need to be made to them for depreciation.

Reference no: EM131152416

Questions Cloud

Profitable local hospital serving small oregon town : Orlberg Memorial Hospital is a 200-bed, not-very-profitable local hospital serving a small Oregon town and its rural surroundings. There is a Costco in a nearby big-city suburb many of whose employees live in this town and use Orlberg Memorial Hospit..
What is the net income for the firm : What is the net income for the firm? Suppose the company paid out $43,000 in cash dividends. What is the addition to retained earnings?
Define a consulting project : Define a consulting project (objectives and process approach) to encourage delegation in a medium-sized firm. Prepare an informational interview scenario with the objective of exploring management consulting opportunities at a chosen firm
Net asset value per share : Imagine that a mutual fund company has $10 million in assets and $9.5 million in liabilities. If there are 100,000 shares of the fund, what is the net asset value per share?
Depreciation tax benefits : We can continue to use an existing machine at a cost of $22,500 annually (after-tax cash basis, including depreciation tax benefits) for the next 4 years.
Determine to the nearest millimeter : The tubular shaft has an inner diameter of 15 mm. Determine to the nearest millimeter its minimum outer diameter if it is subjected to the gear loading.
Describe the levels of data measurement : Evaluate tables and charts used to represent quantitative and qualitative data. Describe the levels of data measurement. Describe the role of statistics in business decision-making
Wealth over the three-month period : The cost of the put options is $2 per share, or a total of $200. As it turns out, the price of the Apple stock goes up to $104 per share. Including the cost of the put options, what was your total gain or loss in your wealth over the three-month p..
The retailer identified new but potentially risky market : An on-line retailer that sells home and children’s items, such as children’s furniture, clothing, and toys, was seeking a way to reach a new audience and stop the declining sales and revenue trends it was suffering. A market research firm hired by th..

Reviews

Write a Review

Operation Management Questions & Answers

  Book review - the goal

Operations Management is about a book review. Title of the book is "Goal". This book has been written by Dr. Eliyahu Goldartt. The book has been appreciated by many as one of those books which offers an insight into the operations and strategic capac..

  Operational plan in hospitality enterprise

Operational plan pertaining to a hospitality enterprise is given in detail in the solution. The operational plan is an important plan or preparation which gives guidelines regarding the role and responsibilities of each and every operation at all lev..

  Managing operations and information

Recognise the importance of a strategic approach to the development and deployment of organisational information systems. Demonstrate an understanding of the importance of databases and their integration to the organisation's overall information mana..

  A make-or-buy analysis

An analysis of the holding costs, including the appropriate annual holding cost rate.

  Evolution and contributor of operations management

Briefly explain Evolution and contributor of Operations management.

  Functions and responsibilities of an operations manager

A number of drivers of change have transformed the roles, functions and responsibilities of an operations manager over recent years. These drivers have not only been based on technological innovations but also on the need for organisations to develop..

  Compute the optimal order quantity

Compute the Optimal Order quantity of DVD players. Determine the appropriate reorder point.

  Relationship to operations practice in the organisation

Evaluate problems in operations and identify approaches to overcoming them. Critically evaluate operating plans and identify areas for improvement. Justify, implement and evaluate changes to operations in line with modern approaches.

  A make or buy analysis

Develop a report for Figi Fabricating that will address the question of whether the company should continue to purchase the part from the supplier or begin to produce the part itself.

  Prepare a staffing plan

Prepare a staffing plan showing the change of your unit from medical/surgical staffing to oncology staffing.

  Leadership styles in different organizations

Ccompare the effectiveness of different leadership styles in different organizations

  Risk management tools and models

Be able to understand the concept of risk, roles and responsibilities for risk management and risk management tools and models.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd