The managers at Wilma Manufacturing are considering replacing a printing press with a new, high-speed model. The company’s cost of capital is 12 percent.

Required:

a. Prepare a relevant cost schedule showing the benefit of buying the new printing press.
(For this requirement, ignore the time value of money.)

b. How much must the company invest today to replace the old printing press?

c. If the company replaces the old printing press, what is the increase in the company’s annual contribution margin?

d. If the company sells the old printing press now to make room for the new one, it will not receive the \($25,000\) residual value at the end of its useful life. Instead, the company will receive the \($45,000\) residual value from the new printing press. With this in mind, if the company buys the printing press, what is the change in the residual value the company is to receive at the end of the seven-year life of the equipment?

e. Calculate the net present value of replacing the old printing press.

f. Do you think the company should replace the old printing press?

Transcribed Image Text:

Information about the old printing press: Cost Estimated useful life Estimated residual value Annual depreciation Current age Accumulated depreciation to date Estimated current fair value Annual contribution margin Information about the new printing press: Cost Estimated useful life Estimated residual value Annual depreciation Annual contribution margin $255,000 10 years $25,000 $23,000 3 years $184,000 $150,000 $110,000 $535,000 7 years $45,000 $70,000 $150,000