A company is considering buying new piece of machinery. A 10% interest rate will be used...

 

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A company is considering buying new piece of machinery. A 10% interest rate will be used in the computations. Two models of machines are available. a) Determine which machine should be purchased based on equivalent uniform annual cost. b) What is the capitalized cost of Machine 1? c) Supposed that machine 1 is purchased and a fund is set up to replace machine 1 at the end of 20 years. Compute the required annual deposits to repurchase the machine. Write down necessary assumption. d) Suppose that Machine 1 will produce an annual saving of material $28,000. What is the rate of return if Machines 1 is installed? e) Compute the depreciation table for Machine 1 for the first 20 years using DDB. f) Compute the depreciation table for Machine 1 for the first 20 years using MACRS. Initial cost Machine 1 $85 000 Machine 2 $90 000 End of useful life salvage value 20 000 O & M Costs 18 000 Useful life, in years 20 25 000 15 000 for first 10 years; 20 000 thereafter. 25 A company is considering buying new piece of machinery. A 10% interest rate will be used in the computations. Two models of machines are available. a) Determine which machine should be purchased based on equivalent uniform annual cost. b) What is the capitalized cost of Machine 1? c) Supposed that machine 1 is purchased and a fund is set up to replace machine 1 at the end of 20 years. Compute the required annual deposits to repurchase the machine. Write down necessary assumption. d) Suppose that Machine 1 will produce an annual saving of material $28,000. What is the rate of return if Machines 1 is installed? e) Compute the depreciation table for Machine 1 for the first 20 years using DDB. f) Compute the depreciation table for Machine 1 for the first 20 years using MACRS. Initial cost Machine 1 $85 000 Machine 2 $90 000 End of useful life salvage value 20 000 O & M Costs 18 000 Useful life, in years 20 25 000 15 000 for first 10 years; 20 000 thereafter. 25

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