The directors of Madura limited are contemplating the purchase of new machine to replace a machine which has been in operation in the factory for the last 5 years. Ignoring interest but considering tax at 50% of net earnings, suggest which of the two alternatives should be preferred. The following are the details: Details Old machine New machine Purchase price R40 000 R60 000 Useful life 10 years 10 years Running hours per year 2 000 2 000 Units per hour 24 36 Wages per running hour R3 R5.25 Power per annum R2 000 R4 500 Consumables per month R500 R625 All other charges per month R666.67 R750 Material cost per unit R0.50 R0.50 Selling price per unit R1.25 R1.25 Depreciation is charged on a straight line basis. Required: Compare accounting profits for both old and new machine. Assess the returns on i) original investment, ii) average investment method and return on incremental investment. Draft a recommendation on whether the old machine should be replaced or

The directors of Madura limited are contemplating the purchase of new machine to replace a machine which has been in operation in the factory for the last 5 years. Ignoring interest but considering tax at 50% of net earnings, suggest which of the two alternatives should be preferred. The following are the details: Details Old machine New machine Purchase price R40 000 R60 000 Useful life 10 years 10 years Running hours per year 2 000 2 000 Units per hour 24 36 Wages per running hour R3 R5.25 Power per annum R2 000 R4 500 Consumables per month R500 R625 All other charges per month R666.67 R750 Material cost per unit R0.50 R0.50 Selling price per unit R1.25 R1.25 Depreciation is charged on a straight line basis. Required: Compare accounting profits for both old and new machine. Assess the returns on i) original investment, ii) average investment method and return on incremental investment. Draft a recommendation on whether the old machine should be replaced or

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EA: Gardner Denver Company is considering the purchase of a new piece of factory equipment that will...

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The directors of Madura limited are contemplating the purchase of new machine to replace a machine which has been in operation in the factory for the last 5 years. Ignoring interest but considering tax at 50% of net earnings, suggest which of the two alternatives should be preferred. The following are the details:Details Old machine New machinePurchase price R40 000 R60 000Useful life 10 years 10 yearsRunning hours per year 2 000 2 000Units per hour 24 36Wages per running hour R3 R5.25Power per annum R2 000 R4 500Consumables per month R500 R625All other charges per month R666.67 R750Material cost per unit R0.50 R0.50Selling price per unit R1.25 R1.25Depreciation is charged on a straight line basis.Required:1.1 Compare accounting profits for both old and new machine.1.2 Assess the returns on i) original investment, ii) average investment method and return on incremental investment.1.3 Draft a recommendation on whether the old machine should be replaced or not.SECTION B ABTS Co Ltd is…
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $402,240 and will generate $120,000 per year for 5 years. Calculate the IRR for this piece of equipment. Present value and future values table: https://openstax.org/books/principles-managerial-accounting/pages/time-value-of-money ________%
Suppose that a company is considering a machine acquisition. The new machine will cost $60.000 and the shipping and installation costs are $20.000 , all are paid in cash. The old machine is fully depreciated and will be sold for $5.000 cash immediately with the purchase of the new one. The useful life of the new machine is 5 years and the company uses accelerated method of depreciation. Tax rate is 20% for the company.Please find the investment cash outflow?
A company will buy a packaging machine. Information about the machines is given below. Which of the machines should be invested according to the net present value method? Purchase price TL Annual income, TL Manufacturing cost,annual TL Manufacturing cost every 5 years TL Scrap value TL Economic life Interest rate A 5000 1800 TL for the first year and 100 TL every year increasing 400 500 3000 18 yıl %25 B 4500 1700 TL for the first year and 80 TL every year increasing 350 650 2500 18 yıl %25
Lesego Ltd is considering an investment in a new machine for the production of a new product, X. There are two possibilities, Machine A and Machine B. Both product X and the machine would have an expected life of five years.The following information is available:Product X Selling price $50Variable cost 32Increase in fixed overhead (excluding depreciation of the new machine) is $90,000 per year.YearSales units 1 10,0002 15,0003 20,0004 20,0005 5,000 Machine A Machine BInitial cost ($000) 550 480Residual value 50 30The company’s cost of capital is 10%,Required:Evaluate each machine, using the following methods:Accounting rate of return Payback;Net present value. Discuss the importance of capital budgeting in organisations.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $360,500 and will generate $100,000 per year for 5 years. Calculate the IRR for this piece of equipment. (Click here to see present value and future value tables) fill in the blank 1%
The data associated with operating and maintaining an asset are shown below. The company manager has already decided to keep the machine for 1 more year (i.e., until the end of year 1), but you have been asked to determine the cost of keeping it 1 more year after that. At an interest rate of 10% per year, estimate the AW of keeping the machine from year 1 to year 2. Operating Cost, $ per Year Market Value, $ 30,000 25,000 14,000 10,000 Year 0 1 2 3 -15,000 -15,000 -15,000
An engineer with Haliburton calculated the AW values shown for retaining a presently owned machine additional years. A challenger has an economic service life of 7 years with AW = $-86,000 per year. Assuming all future costsremain as estimated for the analysis, (a) when should the company replace the defender and with what machine, and (b) when should the companypurchase the challenger? The MARR is 12% per year. Assume used machines like the one presently owned will always be available.
A company is planning to purchase a machine that will cost P240,000, have a six-year life, and be depreciated over a six-year period with no salvage value. The company expects to sell the machine's output of 30,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales Costs: P 900,000 Manufacturing P 520,000 Depreciation on machine 40,000 Selling and administrative expenses 300,000 (860,000 ) Income before taxes P 40,000 Income tax (25%) (10,000 ) Net income…
Suppose a company is considering automating certain parts of an existing production process. The cost of acquiring and installing the required equipment is US $80,000, and the automation equipment will save the company USD 22,000 per year (before tax). The straight-line depreciation method is used, assuming a service life of 5 years. Five years later, the market value is $20,000. Tax rate 34%, discount rate 10% Question: Do you want to complete the equipment retrofit?
The management of Nebraska Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability: Year 1 2 3 4 5 Income from Operations $100,000 40,000 40,000 10,000 10,000 The cash payback period for this investment is a. 4 years b. 5 years c. 3 years O d. 2 years Net Cash Flow $180,000 120,000 100,000 90,000 120,000
The same Company as in Question 2 has just invested in a new Machining Center that cost $250,000. The company believes that it will be able to use this new piece of equipment for the next 10 years. At the end of this 10 year period, the company thinks that they can sell this equipment for $50,000. The company's MARR value is 10% ycy. 0.3855 0.06275 15.9374 0.16275 6.1446 Assume: The Annual Capital Recovery & Return Value (CR) for this new equipment = $-37,550 The Annual Labor Costs = $50,000 The Annual Material Costs = $17,000 The Annual Overhead Costs = $25,000 Annual Sales Revenue resulting from the purchase of the new machine = $200,000 Question: Now the same company wants know how many years (integer value) will it take for the company to pay back its initial investment of $250,000 assuming a 0% time value of money O 3 years O 2 years 4 years O 5 years O 6 years

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Details	Old machine	New machine
Purchase price	R40 000	R60 000
Useful life	10 years	10 years
Running hours per year	2 000	2 000
Units per hour	24	36
Wages per running hour	R3	R5.25
Power per annum	R2 000	R4 500
Consumables per month	R500	R625
All other charges per month	R666.67	R750
Material cost per unit	R0.50	R0.50
Selling price per unit	R1.25	R1.25