Currently, Lewis Company uses two types of manufacturing equipment (M1 and M2) to produce one of...

 

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Currently, Lewis Company uses two types of manufacturing equipment (M1 and M2) to produce one of its products. It is no possible to replace these two machines with a flexible manufacturing system that has a gross cost of $8,700,000. Management wants to know the net investment needed to acquire the flexible system. If the system is acquired, the old equipment will be sold. Lewis has a tax rate of 40 percent. Data relating to the decision are given below: Disposition of Old Machines Book Value M1 M2 Sale Price $600,000 $780,000 1,500,000 1,200,000 Required: 1. Calculate the net proceeds from the sale of M1 and M2 by completing the following table: Sale price, M1 Sale price, M2 Tax savings (cost) Net proceeds 780,000 1,200,000 2. Given the results of Requirement 1, the net investment (cash outlay) for the flexible system is $ Currently, Lewis Company uses two types of manufacturing equipment (M1 and M2) to produce one of its products. It is no possible to replace these two machines with a flexible manufacturing system that has a gross cost of $8,700,000. Management wants to know the net investment needed to acquire the flexible system. If the system is acquired, the old equipment will be sold. Lewis has a tax rate of 40 percent. Data relating to the decision are given below: Disposition of Old Machines Book Value M1 M2 Sale Price $600,000 $780,000 1,500,000 1,200,000 Required: 1. Calculate the net proceeds from the sale of M1 and M2 by completing the following table: Sale price, M1 Sale price, M2 Tax savings (cost) Net proceeds 780,000 1,200,000 2. Given the results of Requirement 1, the net investment (cash outlay) for the flexible system is $

Answer rating: 100% (QA)

To calculate the net proceeds from the sale of M1 and M2 we need to consider the book value sale pri... View the full answer