The Fine Clothing Factory wants to replace an old machine with a new one. Theold machine can be sold to a small factory for R10 000. The new machine wouldincrease annual revenue by R150 000 and annual operating expenses by R60000. The new machine would cost R360 000. The estimated useful life of themachine is 12 years with zero salvage value. Using Average rate of return(ARR), Should Fine Clothing Factory purchase the machine if managementdesired rate of return of 15% on all capital investments? Show all the calculationsand motivate your answer.

Fine clothing factory should purchase the machine if average rate of return in more than desired…

e Fine Clothing Factory wants to replace an old machine with a new one. The machine can be sold to a small factory for R10 000. The new machine would rease annual revenue by R150 000 and annual operating expenses by R60 D. The new machine would cost R360 000. The estimated useful life of the chine is 12 years with zero salvage value. Using Average rate of return RR), Should Fine Clothing Factory purchase the machine if management sired rate of return of 15% on all capital investments? Show all the calculations

e Fine Clothing Factory wants to replace an old machine with a new one. The machine can be sold to a small factory for R10 000. The new machine would rease annual revenue by R150 000 and annual operating expenses by R60 D. The new machine would cost R360 000. The estimated useful life of the chine is 12 years with zero salvage value. Using Average rate of return RR), Should Fine Clothing Factory purchase the machine if management sired rate of return of 15% on all capital investments? Show all the calculations

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
A company decides to automate a process that will require installing a machine that costs BD8,000 and is expected to save BD2,500 per year. If the economic life of the machine is 10 years, at which time it has a salvage value of BD2,000,and if the MARR is 15%, is it a good decision to buy the machine? a. NO, because it will not generate a savings based on PW=BD4,750 over the next 6 years. b. YES, because it will generate a savings based on PW=BD5,142 over the next 8 years. c. YES, because it will generate a savings based on PW=BD5,042 over the next 10 years. d. NO, because it will not generate a savings based on PW=BD5,024 over the next 10 years.
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A firm is considering purchasing equipment that will reduce annual costs by P 40,000. The equipment costs P 300,000 and has a salvage value of P 50,000 and a life of 7 yrs. The annual maintenance cost is P 6,000. While not in use by the firm, the equipment can be rented to others to generate an income of P 10,000 per year. If money can be invested for an 8% return, is the firm justified in buying the equipment? Use annual cost method.
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $55,000. The machine would replace an old piece of equipment that costs $14,000 per year to operate. The new machine would cost $6,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $20,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)