Total-project versus differential approach, income taxes. A specialized automobile parts 1a Total present value manufacturer is considering
Question:
Total-project versus differential approach, income taxes. A specialized automobile parts 1a Total present value manufacturer is considering the acquisition of a new machine. The new machine is far more of recurring after-tax efficient than the present machine. It would cost $87,600, would cut annual cash operating cash operating costs, costs from $72,000 to $48,000, and would have zero terminal disposal price at the end of its
($78,019) useful life of three years. The applicable income tax rate is 30%. The after-tax required rate of return is 14%, The current machine has been used for one year. It will have no useful economic life after three more years. It cost $105,600 when acquired, has a current disposal price of
$39,200, and has a residual disposal price of $7,200.
These machines qualify for a capital cost allowance rate of 20%, declining balance.
REQUIRED Using the net present value method, show whether the new machine should be purchased \
(a) under a total-project approach and
(b) under a differential approach.
LO1
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 9780135004937
5th Canadian Edition
Authors: Charles T. Horngren, Foster George, Srikand M. Datar, Maureen P. Gowing