the beasts, Trough Brewery bought a bottler two years ago for $220,000, with a useful life of six years, salvage value of zero, and operating costs of $92,000 at the end of the first year, which will increase by $3,000 a year in each successive year. can be sold right now for $70,000. The used machine can be replaced today with a new one, priced at $160,000, useful life of four years, salvage value of zero and annual operating costs of $65,000 at the end of the first year, with increases of $4,000 in each successive year. The two machines are depreciated by sum of digits of the years. The MARR of the company is 10% and taxes of 50% are paid. determine the suitability economics of replacement. Answer: Accept replacement, incremental NPV of $423.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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the beasts, Trough Brewery bought a bottler two years ago for $220,000, with a useful life of six years, salvage value of zero, and operating costs of $92,000 at the end of the first year, which will increase by $3,000 a year in each successive year. can be sold right now for $70,000. The used machine can be replaced today with a new one, priced at $160,000, useful life of four years, salvage value of zero and annual operating costs of $65,000 at the end of the first year, with increases of $4,000 in each successive year. The two machines are
Answer: Accept replacement, incremental
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