The management of Devine Instrument Company is considering the purchase of a new drilling machine, model...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The management of Devine Instrument Company is considering the purchase of a new drilling machine, model RoboDril 1010K. According to the specifications and testing results, RoboDril will substantially increase productivity over AccuDril X10, the machine Devine is currently using. The AccuDril was acquired 8 years ago for $110,000 and is being depreciated using the straight-line method over a 10- year expected life and an estimated salvage value of $20,000. The engineering department expects the AccuDril to keep going for another 3 years after a major overhaul at the end of its expected useful life. The estimated cost for the overhaul is $90,000. The overhauled machine will be depreciated using straight-line depreciation with no salvage value. The overhaul will improve the machine's operating efficiency approximately 15% for each of years 3, 4, and 5. No other operating conditions will be affected by the overhaul. RoboDril 1010K is selling for $220,000. Installing, testing, rearranging, and training will cost another $10,000. The manufacturer is willing to take the AccuDril as a trade-in for $20,000. The RoboDril will be depreciated using the straight- line method with no salvage value. New technology most likely will make RoboDril obsolete to the firm in 5 years. Variable operating cost for either machine is the same: $8 per machine hour (cash-based). Other pertinent data follow: AccuDril RoboDril X10 1010K Units of output (per year) 10,000 8,000 100 10,000 4,000 $ Machine hours Selling price per unit Variable manufacturing cost-cash-based (not including machine hours) Other annual expenses (tooling and supervising) Disposal value-today Disposal value-in 5 years 100 $ $85,000 $25,000 $ 25 25 $55,000 $30,000 Devine Instrument Company's weighted-average cost of capital (WACC) is 11%, and it is in the 40% tax bracket. Use the PV factors (Appendix C, Table 1) for calculating the NPV of each decision alternative. a) After-tax Cash Flows PV of Net Cash 4. Outflows Overhaul AccuDril After-tax cash operating cost Overhaul cost (capitalized) Tax savings on depreciation (straight-line method) Other cash expenses, after tax After-tax cash flows Total PV Buy RoboDril 1010k Net equipment purchase After-tax cash operating cost Tax savings on depreciation Other cash expenses, after tax After-tax salvage value After-tax cash flows Total PV PV Difference in cash flows between alternatives b) Payback Period in Years: The management of Devine Instrument Company is considering the purchase of a new drilling machine, model RoboDril 1010K. According to the specifications and testing results, RoboDril will substantially increase productivity over AccuDril X10, the machine Devine is currently using. The AccuDril was acquired 8 years ago for $110,000 and is being depreciated using the straight-line method over a 10- year expected life and an estimated salvage value of $20,000. The engineering department expects the AccuDril to keep going for another 3 years after a major overhaul at the end of its expected useful life. The estimated cost for the overhaul is $90,000. The overhauled machine will be depreciated using straight-line depreciation with no salvage value. The overhaul will improve the machine's operating efficiency approximately 15% for each of years 3, 4, and 5. No other operating conditions will be affected by the overhaul. RoboDril 1010K is selling for $220,000. Installing, testing, rearranging, and training will cost another $10,000. The manufacturer is willing to take the AccuDril as a trade-in for $20,000. The RoboDril will be depreciated using the straight- line method with no salvage value. New technology most likely will make RoboDril obsolete to the firm in 5 years. Variable operating cost for either machine is the same: $8 per machine hour (cash-based). Other pertinent data follow: AccuDril RoboDril X10 1010K Units of output (per year) 10,000 8,000 100 10,000 4,000 $ Machine hours Selling price per unit Variable manufacturing cost-cash-based (not including machine hours) Other annual expenses (tooling and supervising) Disposal value-today Disposal value-in 5 years 100 $ $85,000 $25,000 $ 25 25 $55,000 $30,000 Devine Instrument Company's weighted-average cost of capital (WACC) is 11%, and it is in the 40% tax bracket. Use the PV factors (Appendix C, Table 1) for calculating the NPV of each decision alternative. a) After-tax Cash Flows PV of Net Cash 4. Outflows Overhaul AccuDril After-tax cash operating cost Overhaul cost (capitalized) Tax savings on depreciation (straight-line method) Other cash expenses, after tax After-tax cash flows Total PV Buy RoboDril 1010k Net equipment purchase After-tax cash operating cost Tax savings on depreciation Other cash expenses, after tax After-tax salvage value After-tax cash flows Total PV PV Difference in cash flows between alternatives b) Payback Period in Years:
Expert Answer:
Related Book For
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver
Posted Date:
Students also viewed these accounting questions
-
Illustrate with an example the difference in the format of the equity section of the Balance Sheet between a sole trader, partnership and company.
-
1) During the current year, R received a salary of $120,000. She also earned commissions of $9,000 of which $3,000 was received in the current year. The remaining commissions were paid in January of...
-
The income statement for the month of July is presented below: R 46 800 31 200 15 600 Revenue Cost of Sales Gross Profit Less other operating expenses Rent* Depreciation Electricity and water Wages -...
-
Describe the general process used to determine the ULRD using AICPA sampling tables?
-
Calculate the grand mean, the average for each Brand level, and the Brand effects for the Popcorn data. Identify these effect sizes on the main effects plot.
-
How does a merchandising company income statement differ from a manufacturing company income statement?
-
Dre owns Kratum Company and has the following revenue and expenses. Calculate the after-tax net profit (ignoring self- employment tax) for Dre who is single in 2023. Taxable revenue received...
-
1. In what category of the Product Life Cycle is Campbells soup products? Can a companys product be in one stage of the PLC while the industry category is in another? 2. Beyond product innovation,...
-
Describe a change experience that you have had or are experiencing now. Point out how some of the 12 Change Principles relate. explain why specific things went well and what is, or was, problematic?
-
On January 2, 2020, Brook Company acquired machinery by issuing a 3%, $360,000 note due in five years on December 31, 2024. Annual payments are $78,608 each December 31. The payment schedule is:...
-
I feel guilty for checking my mother into long-term care against her will" by Karen Wilson. (...
-
The General Fund of the village of Oxendine transferred $150,000 to a Special Revenue Fund; $35,000 to a Capital Projects Fund; and $25,000 to Enterprise Fund A. In the same reporting period,...
-
How many major Special Revenue Funds would the County report in the governmental funds financial statements? a. 1 b. 3 c. 4 d. 5 e. None of the above. Chestnut County has the following: One General...
-
Which of the following types of revenues would not be considered a program revenue? a. State grant received for drug enforcement activities. b. Occupancy tax levied by reporting government and...
-
Which of the following statements concerning the accounting and financial reporting for capital assets is false? a. Capitalization thresholds differ among governments and often within governments...
-
Assume that a wealthy alumnus donated $1 million to Chavis University to provide loans to qualifying students. Though not required by the donor, the universitys Board of Trustees voted to supplement...
-
Question 1 The following balances were extracted from the books of Suhaimi Team (ST), a sole trader on 31 December 2022. Particulars Purchases Sales Trade Payables Trade Receivables Inventory as at 1...
-
Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were: Cost of goods sold ..................................................... $330,000 Salaries and wages...
-
The closing balance sheet items are given below for Jason Tink in accounting equation form as at 30 June 2014. Transactions for the following month of July are also given. Transactions for July 2014...
-
Describe the users who would be interested in the performance of an entity and explain their interest.
-
Sheldon Manufacturing estimates the following activity for 2013: Expected production 10 000 units Expected direct labour hours 10 000 hours Expected manufacturing overhead $100 000. Manufacturing...
-
One point on a horizontal circular wire \(\mathrm{C}\) of radius \(R\) is attached to a thin, vertical axle which turns at constant angular velocity \(\Omega\) about the vertical axis, causing...
-
A frictionless slide is constructed in the shape of a cycloid. The horizontal coordinate x and vertical coordinate y of the slide are given in parametric form by where \(A\) is a constant. Here the...
-
The wire described in the preceding problem is now forced to rotate about its vertical axis of symmetry with constant angular velocity \(\Omega\). (a) Find \(\Omega_{c}\), the critical value of...
Study smarter with the SolutionInn App