The Fresno Finial Fabricating Works is considering automating its existing finial casting and assembly department. The plant
Question:
· The automation proposal would result in reduced labor costs of $150,000 per year.
· The cost of defects is expected to remain at $5,000 even if the new automation proposal is accepted.
· New equipment costing $500,000 would need to be purchased. For financial reporting purposes, the equipment will be depreciated on a straight-line basis over its useful four-year life. For tax purposes, however, the equipment falls into the three-year property class and will be depreciated using the MACRS depreciation percentages. The estimated final salvage value of the new equipment is $50,000.
· Annual maintenance costs will increase from $2,000 to $8,000 if the new equipment is purchased.
· The company is subject to a marginal tax rate of 40 percent.
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker