Reference no: EM131436122
FINANCIAL MANAGEMENT-REPLACEMENT OF ASSETS QUESTION
QUESTION
Estate Developers purchased a machine five years ago at a cost of £7,500. The machine had an expected economic life of 15 years at the time of purchase and a zero estimated salvage value at the end of 15 years. It is being depreciated on a straight line basis and currently has a book value of £5,000. The Financial Manager has conducted a feasibility study aimed at acquiring a new machine for £12,000 and is depreciated over its 10 years useful life. The new machine will expand sales from £10,000 to £11,000 per annum and will reduce labor and materials usage sufficiently to cut operating cost from £7,000 to £5,000. The salvage value of the new machine is £2,000 at the end of useful life. The current market value of the old machine is £1,000 and tax is 40%. The firms cost of capital is 10%. The financial manager wishes to make a decision on whether to replace the old machine with a new one and he seeks your held.
N.B. The decision to replace takes into account the following:
a) Estimate the actual cash outlay attributable to the new machine
b) Determine the incremental cash flows.
c) Compute the NPV of incremental cash flows.
d) Add up the present value of the expected salvage value to the P.V. of the incremental cash flow.
e) Ascertain whether the NPV (net present value) is positive or whether the IRR (internal rate of return) exceed the cost in which case invest if it's positive.
|
Why they are important to manufacturing-retail or service
: Describe the following terms in your own words and why they are important to a manufacturing, retail, or service company ?
|
|
Should the process be stopped
: Suppose the sample mean is x‾ = 4.014. Should the process be stopped?- Suppose the sample mean is x‾ = 3.979. Should the process be stopped?
|
|
Importance of customers and customer relations-internal
: Customers and customer relations are critical to the success of a company today. Who talks to external customers, what are the policies for customer service, are they effective, and how could they be improved? What is the company’s customer satisfact..
|
|
Draw a balance sheet for the business
: 1 March- Deposited £20,000 In a bank account 2 March- Purchased fixtures and fittings for £6,000 cash, and inventories £8,000 on credit
|
|
Determine the incremental cash flows
: Estimate the actual cash outlay attributable to the new machine. Determine the incremental cash flows. Compute the NPV of incremental cash flows. Add up the present value of the expected salvage value to the P.V. of the increm..
|
|
Suggest mean weight of cubesats scheduled is different
: Is there any evidence to suggest that the mean weight of CubeSats scheduled for launch is different from 1? Assume the distribution is normal, s = 0.1, and use a = 0.05.
|
|
Maximum torque you can exert under these conditions
: A wrench 35 cm long is attached to a nut and bolt. You exert a 20 N force on the wrench. What is the maximum torque you can exert under these conditions?
|
|
Gender and job satisfaction
: In developing your Research Questions and Hypotheses sections of your chosen topic in assignment 5 you should only state the questions and hypotheses with only minimal discussion required or needed. Example 1: “gender and job satisfaction"
|
|
What is the velocity of the ball
: A rubber ball (1 kg) falls from a height of 25 m and collides elastically with the floor. What is the velocity of the ball just after it rebounds from the floor?
|