Buying a new piece of machinery

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Reference no: EM131809860

A company is considering buying a new piece of machinery. A 10% interest rate will be used in the computations. Two models of the machine are available.

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(a) Determine which machine should be purchased, based on equivalent uniform annual cost.

(b) What is the capitalized cost of Machine I?

(c) Machine I is purchased and a fund is set up to replace Machine I at the end of 20 years. Compute the required uniform annual deposit.

(d) Machine I will produce an annual saving of material of $28,000. What is the rate of return if Machine I is installed?

(e) What will be the book value of Machine I after 2 years, based on sum-of-years'-digits depreciation? ( (f ) What will be the book value of Machine II after 3 years, based on double declining balance depreciation?

(g) Assuming that Machine II is in the 7-year property class, what would be the MACRS depreciation in the third year?

Reference no: EM131809860

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