Depreciation tax benefits

Assignment Help Operation Management
Reference no: EM131152416

We can continue to use an existing machine at a cost of $22,500 annually (after-tax cash basis, including depreciation tax benefits) for the next 4 years. Alternatively, we can purchase a new machine that has an expected life of 7 years for $45,000. The new machine is expected to cost $11,000 each year to operate (after-tax cash basis, including depreciation tax benefits). The new machine will reduce inventory needs by $5,000 starting immediately. This is a one-time reduction in inventory that will last for the entirety of the new machine's life. This reduction in inventory will be reversed at the end of 7 years. The cost of capital is 14%. The existing machine has no salvage value and we estimate that the new machine's salvage value will be 0 in 7 years. Should we purchase the new machine? In the box below, indicate your decision to replace or not replace, and provide support for your answer (i.e., indicate the criteria used to make the decision and the values for that criteria). 

Additional facts for this question:

  • The existing machine has been fully depreciated.
  • As stated, the $22,500 and $11,000 are annual after-tax cash operating costs (i.e., after-tax cash operating costs = net income + depreciation), thus no further adjustments need to be made to them for depreciation.

Reference no: EM131152416

Questions Cloud

Profitable local hospital serving small oregon town : Orlberg Memorial Hospital is a 200-bed, not-very-profitable local hospital serving a small Oregon town and its rural surroundings. There is a Costco in a nearby big-city suburb many of whose employees live in this town and use Orlberg Memorial Hospit..
What is the net income for the firm : What is the net income for the firm? Suppose the company paid out $43,000 in cash dividends. What is the addition to retained earnings?
Define a consulting project : Define a consulting project (objectives and process approach) to encourage delegation in a medium-sized firm. Prepare an informational interview scenario with the objective of exploring management consulting opportunities at a chosen firm
Net asset value per share : Imagine that a mutual fund company has $10 million in assets and $9.5 million in liabilities. If there are 100,000 shares of the fund, what is the net asset value per share?
Depreciation tax benefits : We can continue to use an existing machine at a cost of $22,500 annually (after-tax cash basis, including depreciation tax benefits) for the next 4 years.
Determine to the nearest millimeter : The tubular shaft has an inner diameter of 15 mm. Determine to the nearest millimeter its minimum outer diameter if it is subjected to the gear loading.
Describe the levels of data measurement : Evaluate tables and charts used to represent quantitative and qualitative data. Describe the levels of data measurement. Describe the role of statistics in business decision-making
Wealth over the three-month period : The cost of the put options is $2 per share, or a total of $200. As it turns out, the price of the Apple stock goes up to $104 per share. Including the cost of the put options, what was your total gain or loss in your wealth over the three-month p..
The retailer identified new but potentially risky market : An on-line retailer that sells home and children’s items, such as children’s furniture, clothing, and toys, was seeking a way to reach a new audience and stop the declining sales and revenue trends it was suffering. A market research firm hired by th..

Reviews

Write a Review

Operation Management Questions & Answers

  Who needs to be involved in formulating organizational

Who needs to be involved in formulating organizational strategy? Name some of the competitive trade offs that might arise in a fast food restaurant.

  Ability to develop brand as source of competitive advantage

Do ethical practices affect a firm’s ability to develop brand as a source of competitive advantage? If so, how does this happen? Can you think of brands that are a source of competitive advantage at least in part because of the firm’s ethical practic..

  Give your opinions on what you think the difference is

give your opinions on what you think the difference is between law and ethics. do not research this. this is your

  Prepare an aggregate plan that uses inventory

Given the projected demands for the next six months, prepare an aggregate plan that uses inventory, regular time and overtime, and backorders. Regular time is 150 units per month. Overtime is a maximum of 20 units per month. Overtime cost is $30 p..

  Illustrate what factor results in greater resistance

Illustrate what factor results in greater resistance to change in some cultures than in others.

  Underlying philosophy regarding work and equity

If a person said to you, “It’s easy to reduce turnover – just pay people more money,” what would your response be? What is your underlying philosophy regarding work and equity? Would your answer change if you were in the employer’s or the employee’s ..

  A manufacturing group mass produces one product

A Manufacturing group mass produces one product. It has 10 manufacturing locations and the manager of each location only reports the average quantity made per location each week. Can the Corporate Operations Manager claim an increase in the performan..

  Aboutb the national labor relations

What factors in the 1800s up to the early 1930s, including how work was organized, contributed to the emergence of unions and the growth of the American Labor Movement? What factors have contributed to the decline of union membership? What are the pr..

  Panel interview versus and individual interview

What are the advantages/disadvantages of a panel interview versus and individual interview? If you were the staffing director which one would you prefer to use? Why. If you were the one being interviewed which one would you prefer?

  Dimensions of the business-to-business service experience

The dimensions of the business-to-business service experience include all of the following EXCEPT ________.

  Limitations of michael porters five forces model

The following are the limitations of Michael Porter's five forces model. Please elaborate on each one: 'Five star' industries are rare in the real world. The model fails to account for the impact that radical change and innovation can have on an indu..

  Perform an ethical analysis

Scheduling people to work second and third shifts (evening and "graveyard") is a problem in almost every 24-hour company. There can be potentially dangerous issues on the night shift. In addition, ergonomic data indicate the body does not respond wel..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd