Equipment replacement. atlas, inc. sells a million units per year of its product for $25. the company
Question:
Equipment replacement. atlas, inc. sells a million units per year of its product for $25. the company purchased an ncl machine 2 years ago for $6 million. the machine was expected to last 6 years and has annual fixed costs of $2 million (including depreciation) and total variable costs of $16 per unit. the current sales value of the old machine is $1 million. a new ncl machine may be purchased at a cost of $4 million. the new machine is expected to last 4 years and have a zero salvage value, the new machine reduces the fixed operating costs to $1.2 million (including depreciation) and would result in a total unit variable cost of $14.00. a. excluding taxes, should atlas purchase the new machine? b. if taxes are considered with a 40% tax rate, should atlas purchase the new machine? c. recomputed (b) considering the present value of money with a required annual return on investment of 10% (pv of $1 per year for 4 years at 10%=$3.16987)?
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1111534912
8th edition
Authors: Gary A. Porter, Curtis L. Norton