Company Dentry produces and sells only one type of special gear. The normal production and
sales volume is 12,000 gears per year. The sales price is € 12 per sprocket. The production
is done with the help of a machine of which a new version will appear on the market as of 1-1-2022, which
is also suitable for Dentry in terms of capacity:
• The purchase price of this machine is €175,000.
• The residual value is always 20% of the book value at the end of the year of use.
• The technical life span is 6 years.
The average annual interest costs are set at 7.5% of half of the purchase value and the
sales proceeds
With this machine, 12,000 gears can be produced in the first year and the production capacity
will decrease by 6.5% annually.
The complementary cost with this machine is the first year for the production of 12,000
gears estimated at €15,000 in the course of the first year respectively complementary costs at 25% per year.
The machine will produce 6% less gears every year due to aging.
Further engineering improvements are not expected so Dentry is considering the existing installation, of which the estimated remaining useful life was still 1 year, to be replaced as of 1-1-2022, because it is assumed that the costs per unit of product are lower with the new installation. To this end, one determines the economic life of the new installation.
Wanted:
a. What is the economic life of the new machine taking into account only above data? 
b. Prepare a depreciation plan for this new machine. 
The cost price of the products produced with the old installation, determined in the same way, amounted to up to €7.50 per cog. The estimated complementary costs included in this calculation for the production with the old machine of 9,000 gears in 2022 are € 34,000.
c. Has the economic life of the old machine expired? Motivate or U proceeds to trade-in.
The manufacturer of the new machine is prepared to pay €25,000 for the old machine in the event of a trade-in.
d. Motivate whether you consider a trade-in desirable on purely calculation grounds. 

Answer rating: 100% (QA)

A B and C D Dentry Co New Machine Cost 175000 Residual Value 20 35000 Useful Life 6 Yrs A Year Prod... View the full answer