Magna Inc. is considering modernizing its production facility by investing in new equipment and selling the old
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Question:
Magna Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment.
Old Equipment | New Equipment | |||||
Cost | $81,600 | Cost | $39,200 | |||
Accumulated depreciation | $40,300 | Estimated useful life | 8 years | |||
Remaining life | 8 years | Salvage value in 8 years | $4,904 | |||
Current salvage value | $10,500 | Annual cash operating costs | $29,000 | |||
Salvage value in 8 years | $0 | |||||
Annual cash operating costs | $35,100 |
Depreciation is $10,200 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value $4,904
Calculate the net present value assuming a 17% rate of return (Ignore income taxes):
Related Book For
Financial Accounting
ISBN: 978-1259103285
5th Canadian edition
Authors: Robert Libby, Patricia Libby, Daniel Short, George Kanaan, M
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