The management of Universal Technical Systems is contemplating the purchase of a new machine (at a cost of $200,000)...

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The management of Universal Technical Systems is contemplating the purchase of a new machine (at a cost of $200,000) that is capable of producing 192,000 units per year. The old machine has a book value of $80,000, but can be sold for $40,000. It is capable of producing 130,000 units per annum. The contribution margin per unit from operating the new machine is $0.25 and it is $0.20 per unit from operating the old machine. The useful life of the old machine was ten years when it was purchased two years ago. The useful life of the new machine is eight years. The new machine has a salvage value of $40,000 and the old machine's salvage value is zero. The old machine will require an overhaul at the end of two years from today at a cost of $20,000. The new machine will require an overhaul at the end of the fourth year at a cost of $16,000. The firm's cut off rate for investment decisions is ten per cent. Income taxes are to be ignored. REQUIRED: A. Determine if the old machine should be replaced. To receive credit, show all computations, describing your work legibly in detail. (11 marks) B. In what ways can accountants add value to the capital budgeting process? Write a brief essay expressing your views on the subject. (6 marks)

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Given data New Machine old Machine Cse life 8 yrs loye 2yrs Completed cost 2 00 0 View the full answer