Purchase Solution

Replacement analysis: Depreciation and Salvage Value

Not what you're looking for?

Ask Custom Question

Mississippi River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $30,000 to $48,000 per year. The new machine will cost $85,000, and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period; so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 20%. The old machine has been fully depreciated and has no salvage value. Conduct replacement analysis using the given information.

Purchase this Solution
Solution Summary

This solution provides replacement analysis for a company in Excel.

Solution Preview

Step by step solution attached.

Step 1: To compute the relevant cash flows
Year 0 1 2 3 4 5 6 7 8
Machine cost $(85,000)
Incremental earnings before depreciation $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000
Less: Depreciation expense $17,000 $27,200 ...

Solution provided by:
Radhika Lakshmi, MPhil
Education
  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
Recent Feedback
  • "Great explanations on how the answers were obtained."
  • "Love the way she explains everything step by step."
  • "Solutions were thoroughly explained."
  • "Excellent explanations of how problems are solved"
  • "Thanks"
Purchase this Solution
Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

View More Free Quizzes
Related BrainMass Solutions

  • Finance: Optimal replacement cycle for machinery and when it should be replaced.

    NPV(n) = Current value + Cash Flow(1) + Cash Flow(2) + Cash Flow(3) + ... + Cash Flow(n) + Salvage Value(n) where: Cash Flow = Revenue - Expenses Salvage value = Current value - Depreciation NPV(y1) =

  • Business math (B Company and their new delivery truck)

    The truck is expected to have a useful life of 90,000 miles before replacement, and a salvage value of $2,000. In its first year the truck was driven 22,000 miles, and a further 19,000 miles in year two.

  • The Chang Company: Replacement Analysis for new machine

    337582 The Chang Company: Replacement Analysis for new machine The Chang Company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has a book value and a market value of zero.

  • Replacement Cost Depreciation and Historical Cost Depreciation

    521792 Replacement Cost Depreciation and Historical Cost Depreciation You purchased an MRI scanner two years ago for $2.0 million. The MRI has a 5-year depreciable life with no salvage value.

  • Durst Equipment Company

    ( Replacement Analysis ) The Durst Equipment Company purchased a machine 5 years ago at a cost of $100,000. It had an expected life of 10 years at the time of purchase and an expected salvage value if $10,000 at the end of the 10 years.

  • Replacement Project

    The old oven is being depreciated over a 10 year life toward a zero estimated salvage value on a straight line basis, resulting in a current book value of $15,000 and an annual depreciation expense of $3,000.

  • calculate the present value of all changes in cash flow

    68209 calculate the present value of all changes in cash flow An equipment replacement decision, under incremental analysis, requires, A) calculating the present value of all cash flows associated with the new equipment minus the salvage value of the

  • Net investment

    The firm is considering selling it and purchasing a new one. The new grinder would cost $25,000 installed and would be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. The company's marginal tax rate is 40%.

  • Depreciation Calculation

    It was estimated at that time that its life would be 40 years, with no salvage value.

View More Related Solutions