Considering replacing these evaporators with new machine

Assignment Help Financial Management

Reference no: EM13874891

Klondike Pharmaceuticals has several herb extractor evaporators that were purchased four years ago at a price of $20,000 (you can ignore inflation). These machines currently require annual maintenance costs of $2,000. However, the maintenance agreement with the manufacturer expires at the end of two years and Klondike expects annual maintenance to increase to $8,000 per year thereafter. The machines could be sold, as is. for $8,000, but there value will decline to $3,500 at the end of two years. At the end of year 6, the machine's useful life will be over and they will be disposed of as valueless scrap.

Klondike is considering replacing these evaporators with a new machine that will accomplish the same job. The cost of the new machine is $25,000 and the manufacturer offers an 8-year maintenance contract of $1,000 per year. This machine will have an 8-year life and be worthless scrap at the end. Assume both all of this equipment (new & old) is depreciated using 7-yr MACRS and has a tax rate of 35%. At a cost of capital of 7%, when should Klondike replace its evaporators?

Reference no: EM13874891

Questions Cloud

Plot the simulink rectifier input voltage and load voltage : Find the load dc current and find the rms of the ac current input to the rectifier - Plot the Simulink rectifier input voltage and load voltage on the same plot

Employee performance management in businesses : Corporate performance management - for employee performance management in businesses and organisations - training tips beyond systems to people

Adjusted trial balance : Dorothy Corporation had the following accounts in its year end adjusted trial balance:

Because of the time value of money : Because of the time value of money, the longer before an option expires, the more valuable the option will be, other things held constant. An option is a contract that gives its holder an obligation to buy or sell an asset at a predetermined price wi..

Considering replacing these evaporators with new machine : Klondike Pharmaceuticals has several herb extractor evaporators that were purchased four years ago at a price of $20,000 (you can ignore inflation). These machines currently require annual maintenance costs of $2,000. Assume both all of this equipmen..

Compute each employee compa-ratio : Compute each employee's compa-ratio (current salary divided by the midpoint). This value represents the relative position of the employee's current salary to the market (low, equal, high) and can be useful in making award decisions

Design effective graphics for visual presentations : Design effective graphics for visual presentations

What is the best estimate of the stocks price per share : Based on the corporate valuation model, the value of Weidner Co.'s operations is $1,200 million. The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrel..

Selecting a package of employee benefits : What issues should an organization consider in selecting a package of employee benefits? How should an employer manage the trade-offs among these considerations? Please ensure you provide at least a full paragraph answer to the question

User Account

All Pages