Igwe Co. is considering replacing an old equipment for a new equipment with a 10 year...

 

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Igwe Co. is considering replacing an old equipment for a new equipment with a 10 year life. The new equipment cost $80,000.00 with a salvage value of $8,000.00 and will generate a cost saving of $16,000 per year. The old equipment has a book value of $60,000.00 with a salvage value of $4,000.00. The current value of the old equipment is $40,000. Annual depreciation for the old Equipment is $4,000.00. The tax rate applied is 40%. The rate of return required was 10% (1) If the decision is made to purchase the new Equipment, is there a gain or loss on the disposal of the old Equipment? (2) Operating income or Loss? (3) What is the annual cash flow? (4) What is the Payback period for the new equipment: (5) Average investment (6) Return on Investment (7) What is the net present value? (8) What would be your decision? All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments. Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent): Igwe Co. is considering replacing an old equipment for a new equipment with a 10 year life. The new equipment cost $80,000.00 with a salvage value of $8,000.00 and will generate a cost saving of $16,000 per year. The old equipment has a book value of $60,000.00 with a salvage value of $4,000.00. The current value of the old equipment is $40,000. Annual depreciation for the old Equipment is $4,000.00. The tax rate applied is 40%. The rate of return required was 10% (1) If the decision is made to purchase the new Equipment, is there a gain or loss on the disposal of the old Equipment? (2) Operating income or Loss? (3) What is the annual cash flow? (4) What is the Payback period for the new equipment: (5) Average investment (6) Return on Investment (7) What is the net present value? (8) What would be your decision? All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments. Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):

Answer rating: 100% (QA)

Data Given New Equipment Cost 8000000 New Equipment Life ... View the full answer