ACC - Two replacement machines are described below to replace a current

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Two  replacement machines are described below to replace a current one that has no salvage value. The current machine must be replaced and the replacement will not have any effect on quantity produced or sold, revenue,  or S.G.& A. (except depreciation).  The cost of the replacement machine will be depreciated using 5-year MACRS. The project evaluation time span should be 6 years.         
Machine A, while  less expensive, only has a life span of 3 years  Therefore it will have to be replaced at the end of year 3.  Therefore its investment will be incurred both in year 0 and in year 3.  Its salvage value will be received when replaced.        
Machine B is more expensive but will last 6 years and has a lower annual operating costs.        
All cost information is listed below.  Performa a financial analysis to compare the alternatives.        
        
 Data block       
 MARR= 13.00%      
 Income Tax rate 18.00%      
 Capital Gains rate 15.00%      
 Time span 6 years     
 Machine A B     
 Purchase Cost $70,000  $150,000      
 Salvage Value $5,000  $30,000      
 Annual COGS $8,500  $5,000      
 5-year MACRS Year 1 2 3 4 5 6
  Percentage 20% 32% 19.20% 11.52% 11.52% 5.76%

    • 12 years ago
    ACC - Two replacement machines Solution
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