Tornado Company is considering replacing a metal cutting machine with a newer model. The new machine...
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Tornado Company is considering replacing a metal cutting machine with a newer model. The new machine is more efficient than is the old machine, but it has a shorter overall life. Revenues from aircraft parts ($1.1 million per year) will be unaffected by the replacement decision. Summary data on existing (old) machine and the replacement (new) machine follow : Original cost Useful life Current age Remaining useful life Accumulated depreciation $1,000,000 5 years 3 years 2 years $600,000 $400,000 $40,000 Old existing machine New replacement machine $600,000 2 years О years 2 years Not acquired yet Not acquired yet Not acquired yet $0 Book value Current disposal price (in cash) Terminal disposal price ( in cash 2 years 0 from now ) Annual operating costs (maintenance, energy, repairs, coolants, and so on) $800,000 $460,000 Tornado uses straight line depreciation. To focus on the main concept of relevance, ignore time value of money and income taxes. Should Tornado replace its existing machine? Tornado Company is considering replacing a metal cutting machine with a newer model. The new machine is more efficient than is the old machine, but it has a shorter overall life. Revenues from aircraft parts ($1.1 million per year) will be unaffected by the replacement decision. Summary data on existing (old) machine and the replacement (new) machine follow : Original cost Useful life Current age Remaining useful life Accumulated depreciation $1,000,000 5 years 3 years 2 years $600,000 $400,000 $40,000 Old existing machine New replacement machine $600,000 2 years О years 2 years Not acquired yet Not acquired yet Not acquired yet $0 Book value Current disposal price (in cash) Terminal disposal price ( in cash 2 years 0 from now ) Annual operating costs (maintenance, energy, repairs, coolants, and so on) $800,000 $460,000 Tornado uses straight line depreciation. To focus on the main concept of relevance, ignore time value of money and income taxes. Should Tornado replace its existing machine?
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Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
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