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A machine can be purchased for $220,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double declining balance depreciation is applied, using a 5 year life and a $40,000 salvage value. |
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||||||||||||
| Net incomes | $ | 12,000 | $ | 42,000 | $ | 92,000 | $ | 67,000 | $ | 192,000 | ||||||||||
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Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and final answer to 2 decimal places.) |
| Payback period | years |
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A company must decide between scrapping or reworking units that do not pass inspection. The company has 18,000 defective units that cost $5.20 per unit to manufacture. The units can be sold as is for $2.50 each, or they can be reworked for $3.50 each and then sold for the full price of $9.90 each. If the units are sold as is, the company will also be able to build 18,000 replacement units at a cost of $5.20 each, and sell them at the full price of $9.90 each. |
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What is the incremental income from selling the units as scrap? (Omit the “$” sign in your response.) |
| Incremental income | $ |
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What is the incremental income from reworking and selling the units? (Omit the “$” sign in your response.) |
| Incremental income | $ these are wrong |
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Xu Company is considering replacing one of its manufacturing machines. The machine has a book value of $38,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. It has a current market value of $48,000. Variable manufacturing costs are $33,500 per year for this machine. Information on two alternative replacement machines follows. |
| Alternative A | Alternative B | |||||
| Cost | $ | 121,000 | $ | 115,000 | ||
| Variable manufacturing costs per year | 22,300 | 10,900 | ||||
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Calculate the total change in net income if Alternative A is adopted. (Input all amounts as positive values, except cash outflows and any negative total change in net income which should be indicated by a minus sign. Omit the “$” sign in your response.) |
| Alternative A: Increase or (Decrease) in Net Income | |
| Cost to buy new machine | $ |
| Cash received to trade in old machine | |
| Reduction in variable manufacturing costs | |
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| Total change in net income | $ |
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Calculate the total change in net income if Alternative B is adopted. (Input all amounts as positive values, except cash outflows and any negative total change in net income which should be indicated by a minus sign. Omit the “$” sign in your response.) |
| Alternative B: Increase or (Decrease) in Net Income | |
| Cost to buy new machine | $ |
| Cash received to trade in old machine | |
| Reduction in variable manufacturing costs | |
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| Total change in net income | $ |
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Should Xu keep or replace its manufacturing machine? If the machine should be replaced, which alternative new machine should Xu purchase? |
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