Your company is considering the replacement of one of your assembly line robots. Both the new...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Your company is considering the replacement of one of your assembly line robots. Both the new and the old robot would last another 5 years. Your annual sales will remain constant at $49,000 regardless of which robot is used. You estimate that the old robot can be sold for $10,000 today or $4,000 in 5 years, after taxes. The annual cost of running the robot is $42,000 and its annual depreciation expense is $3,200. You estimate that the new robot will cost $50,000 today and can sold for $10,000, after taxes, in 5 years. The annual cost of running the robot will be $28,000 and its annual depreciation expense will be $5,000. The new robot doesn't require any additional net working capital. Your marginal tax rate is 34% and the cost of capital for this project is 20%. Your task is to determine whether you should replace the robot. Part A: What would be the incremental free cash flow in each of the first 4 years? Part B: What would be the incremental free cash flow in year 5? Part C: What is the NPV of the project? Your company is considering the replacement of one of your assembly line robots. Both the new and the old robot would last another 5 years. Your annual sales will remain constant at $49,000 regardless of which robot is used. You estimate that the old robot can be sold for $10,000 today or $4,000 in 5 years, after taxes. The annual cost of running the robot is $42,000 and its annual depreciation expense is $3,200. You estimate that the new robot will cost $50,000 today and can sold for $10,000, after taxes, in 5 years. The annual cost of running the robot will be $28,000 and its annual depreciation expense will be $5,000. The new robot doesn't require any additional net working capital. Your marginal tax rate is 34% and the cost of capital for this project is 20%. Your task is to determine whether you should replace the robot. Part A: What would be the incremental free cash flow in each of the first 4 years? Part B: What would be the incremental free cash flow in year 5? Part C: What is the NPV of the project?
Expert Answer:
Answer rating: 100% (QA)
Part A To determine the incremental free cash flow in each of the first 4 years we need to calculate the cash inflows and outflows associated with each robot option For the old robot Annual cash inflo... View the full answer
Related Book For
Introduction To Management Accounting
ISBN: 9781292412566
17th Edition, Global Edition
Authors: Charles Horngren, Gary L Sundem, Dave Burgstahler
Posted Date:
Students also viewed these finance questions
-
Assume that it is January 1, 2019, and that the Mendoza Company is considering the replacement of a machine that has been used for the past 3 years in a special project for the company. This project...
-
Your team of four people form a financial analysis team at Aussie Finance Consulting (AFC), a renowned financial institution. The executive management of AFC has assigned you a task to carry out a...
-
Assume that the Mendoza Company is considering the replacement of a current machine, which has been used for the past three years in the operations of the business. The anticipated purchase date for...
-
Q1 The spectrum of two light sources A and B are shown in Figure 1(a) and Figure 1(b) respectively: W Light Source A 10. wwwth [nm] 1.045,24 11.A Light Source B MA MA 1 ww.alanghem MA Figure 1(a)...
-
Given a relation S (student, subject, marks), write a query to find the top n students by total marks, by using ranking.
-
Explain why engagements to perform agreed-upon procedures are restricted to specified users.
-
The General Social Survey asked a sample of 2780 adults how many children they had, and also how many siblings (brothers and sisters) they had. The results are summarized in the following contingency...
-
You have been assigned the task of evaluating two mutually exclusive projects with the following projected cash flows: If the appropriate discount rate on these projects is 10 percent, which would be...
-
Catalan Ltd is a small Cape Town-based company that records and sells CDs and DVDs featuring African musicians/artists and promotes their concerts all around the world. Catalan Ltd has 12 million...
-
Using the information presented in Problem 13.4B, prepare a partial statement of cash flows for the current year, showing the computation of net cash flows from operating activities using the...
-
Among all closed rectangular boxes of volume 27 cm 3 , what is the smallest surface area?
-
The management of Nixon Corporation is investigating purchasing equipment that would cost $552,000 and have a 7 year life with no. salvage value. The equipment would allow an expansion of capacity...
-
1. (6 points) Two blocks, of unequal size, are suspended by strings and hung fully submerged in water. The 3 kg block is made of lead while the 1 kg block is made of aluminum. Find the tension in...
-
Explain in detail classified balance sheet with current assets, current liabilities, Long term assets, Long term liabilities, Intangible assets and Shareholders equity with specific examples and...
-
Balances at 3 1 January 2 0 0 9 : Debtors control account.............................$ 3 2 , 4 0 0 Creditors control account...........................$ 2 5 , 2 0 0...
-
Find the value of a 6 percent (annual) coupon bond that matures in 2 years, has a par value of 1000 and pays coupon semiannually if the required annual rate of return on this type of bond is 12%?
-
Develop a project on creating public awareness of Intellectual property rights (IPR) specifically to business-minded people between two city communities in Africa. OBJECTIVE/REQUIREMENT Recognizing...
-
The age-old saying for investing is "buy low and sell high," but this is easier said than done. Investors who panic about falling prices sell their investments, which in turn lowers the price and...
-
Why is there a direct-materials inventory account but no direct-labor inventory account on a manufacturing companys balance sheet?
-
Master budgets are always static master budgets. Do you agree? Explain.
-
In order to tap opportunities and at the same time minimize risks, successful companies around the world have diversified their product portfolio. Today, many companies have emerged as successful...
-
The spectral density of a random signal is given by \[S(f)= \begin{cases}0.0001 \mathrm{~m}^{2} / \text { cycle } / \mathrm{s}, & 10 \mathrm{~Hz} \leq f \leq 1000 \mathrm{~Hz} \\ 0, & \text {...
-
The marginal density function of \(x\) can be determined form the bivariate density function \(p(x, y)\) as a. \(p(x)=\int_{-\infty}^{\infty} p(x, y) d y\) b. \(p(x)=\int_{-\infty}^{\infty} p(x, y) d...
-
Fill in the Blank. Univariate distributions describe the probability distributions of __________ random variables.
Study smarter with the SolutionInn App