Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine Cost, 10 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses Annual product revenue Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 New Machine Cost, 6 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. Old Machine New Machine (Alt. 2) Differential (Alt. 1) Income Revenues Costs Income (Loss) 2. Which Alternative would you propose? What other factors should be considered? 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal?
Johnson Co. is considering replacing a machine that has been used for four years. Assume neither the new or old machine has a residual value. Yearly revenue and nonmanufacturing expenses are not expected to be impacted. Old Machine Cost, 10 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) Annual nonmanufacturing expenses Annual product revenue Selling price of machine 108,000 10,800 38,600 12,300 95,000 35,900 New Machine Cost, 6 year life Annual Depreciation Annual Manufacturing Costs (excl. Dep.) 138,000 23,000 18,200 1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased. Old Machine New Machine (Alt. 2) Differential (Alt. 1) Income Revenues Costs Income (Loss) 2. Which Alternative would you propose? What other factors should be considered? 3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...
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1. Prepare a differential anaysis comparing present machine (Alt. 1) to new machine (Alt. 2). Analysis should indicate total differential income over the six-year period if the new machine is purchased.
2. Which Alternative would you propose? What other factors should be considered?
3. What if you could invest the funds required to purchase the new equipment (cost less proceeds from sale of old machine) at 4% per year. Does this change your viewpoint? What does this indicate of the limitations of this method for evaluating an investment proposal?
![Johnson Co. is considering replacing a machine that has been used for four years.
Assume neither the new or old machine has a residual value.
Yearly revenue and nonmanufacturing expenses are not expected to be impacted.
Old Machine
ECost, 10 year life
Annual Depreciation
O Annual Manufacturing Costs (excl. Dep.)
Annual nonmanufacturing expenses
e Annual product revenue
3 Selling price of machine
108,000
10,800
38,600
12,300
95,000
35,900
5 New Machine
Cost, 6 year life
Annual Depreciation
8 Annual Manufacturing Costs (excl. Dep.)
138,000
23,000
18,200
01. Prepare a differential anaysis comparing present machine (Alt. 1) to new
machine (Alt. 2). Analysis should indicate total differential income over
the six-year period if the new machine is purchased.
Old Machine
New Machine
Differential
(Alt. 1)
(Alt. 2)
Income
7 Revenues
D Costs
5 Income (Loss)
7 2. Which Alternative would you propose? What other factors should be considered?
3 3. What if you could invest the funds required to purchase the new equipment (cost less
proceeds from sale of old machine) at 4% per year. Does this change your viewpoint?
1.
What does this indicate of the limitations of this method for evaluating an investment proposal?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F27e4785a-03df-45b0-a907-5cbe49d48357%2F298dfcf3-76ac-4832-b08a-9a2cd32060ac%2Fhbiigxa_processed.png&w=3840&q=75)
Transcribed Image Text:Johnson Co. is considering replacing a machine that has been used for four years.
Assume neither the new or old machine has a residual value.
Yearly revenue and nonmanufacturing expenses are not expected to be impacted.
Old Machine
ECost, 10 year life
Annual Depreciation
O Annual Manufacturing Costs (excl. Dep.)
Annual nonmanufacturing expenses
e Annual product revenue
3 Selling price of machine
108,000
10,800
38,600
12,300
95,000
35,900
5 New Machine
Cost, 6 year life
Annual Depreciation
8 Annual Manufacturing Costs (excl. Dep.)
138,000
23,000
18,200
01. Prepare a differential anaysis comparing present machine (Alt. 1) to new
machine (Alt. 2). Analysis should indicate total differential income over
the six-year period if the new machine is purchased.
Old Machine
New Machine
Differential
(Alt. 1)
(Alt. 2)
Income
7 Revenues
D Costs
5 Income (Loss)
7 2. Which Alternative would you propose? What other factors should be considered?
3 3. What if you could invest the funds required to purchase the new equipment (cost less
proceeds from sale of old machine) at 4% per year. Does this change your viewpoint?
1.
What does this indicate of the limitations of this method for evaluating an investment proposal?
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