Should the company replace the old machine now

Assignment Help Financial Accounting

Reference no: EM132767835

Question - Aussie Boilers Pty Ltd is a major supplier of boilers for mining companies in the north of Western Australia. It is considering to replace an old welding machine with a state-of-the-art welding machine that would increase the sale revenues from $ 35,000 to $100,000. The new machine would cost the company $500,000 to purchase and has a life of 10 years. It also has an estimated salvage value of $50,000 at the end of its life.

The old machine was purchased 5 years ago at a cost of $300,000 and the accumulated depreciation shown in accounting records is $150,000. It has a remaining life of 5 years and as that time it will be worthless. However, the company can sell the old machine to other companies in the industry now for $180,000. Both the old machine and the new machine are depreciated using the straight-line method. The company has a tax rate of 30 percent and its required rate of return is 10 percent per annum.

Should the company replace the old machine now or later in five years' time? (Show all workings and state any assumptions that may be necessary).

Reference no: EM132767835

Questions Cloud

How does melindas proposed policy for revenue recognition : How does Melinda's proposed policy for revenue recognition from custom orders violate the characteristics, elements, and principles of the Conceptual Framework

What is the growth rate of the dividends of Company E stock : Company E's dividends are expected to grow at a constant rate indefinitely. What is the growth rate of the dividends of Company E's stock

Theoretical foundations of community services work : Write a reflective essay on discussions, learning, group processes & activities in class & group tutorial - Reflections on the theoretical foundations

What price would an investor be expected to pay per share : The equity cost of capital for the company is 10%. What price would an investor be expected to pay per share 6 years into the future

Should the company replace the old machine now : Should the company replace the old machine now or later in five years' time? (Show all workings and state any assumptions that may be necessary)

Calculate the level annual gross premium : For the same policy, assume expenses of $900 + 30% of the gross premium in the first year, calculate the level annual gross premium

How much of these salaries are common fixed expenses : WV Construction has two divisions: Remodeling and New Home Construction. How much of these salaries are common fixed expenses

Draw erd for new inventory system for primer labs : What system development approach should be used by "Primer Labs", justify your choice of your selected approach and Identify functional and non-functional

Describe the problem your intervention will address : Describe the problem your intervention will address. Identify any cultural or societal influences or norms that may influence the health status.

User Account

All Pages