Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume that it is January 1,2022, and that the Mendoza Company is considering the replacement of a machine that has been used for the past

image text in transcribed
image text in transcribed
Assume that it is January 1,2022, and that the Mendoza Company is considering the replacement of a machine that has been used for the past 3 years in a special project for the company. This project is expected to continue for an additional 5 years (i.e., until the end of 2026). Mendoza will either keep the existing machine for another 5 years ( 8 years tota) or replace the existing machine now with a new model that has a 5 -year estimated life. Pertinent facts regarding this decision are as follows: "Note: These amounts are used for depreciation calculations. Assume further that Mendoza is subject to a 40x income tax, for both ordinary income and gains/osses associated with disposal of machinery, and that all cash flows occur at the end of the year, except for the initial investment. Assume that straight-line depreciation is used for tax purposes and that any tax associated with the disposal of mochinery occurs at the same time as the related transaction. Required: 1. Determine relevant cash flows (after-tax) ot the time of purchase of the new machine (1.e., time 0: January 1,2022). 2. Determine the relevant (after-tax) cash inflow each year of project operation (i.e, at the end of each of years 1 through 5 ). 3. Determine the relevant (after-taxy cash infliow ot the end of the projects life (i.e, at the project's disposal time, December 31, 2026). 5. Determine the undiscounted net cash flow (after tax) for the new machine and determine whether, on this basis, the old machine shinidit ha reniscen 'Note: These amounts are used for depreciation calculations. Assume further that Mendoza is subject to a 40% income tax, for both ordinary income and gains/losses associated with disposal of machinery, and that-all cash flows occur at the end of the year, except for the initial investment. Assume that straight-line depreciation is used for tax purposes and that any tax associated with the disposal of machinery occurs at the same time as the related transaction. Required: 1. Determine relevant cash flows (after-tax) at the time of purchase of the new machine (i.e., time 0: January 1, 2022). 2. Determine the relevant (after-tax) cash inflow each year of project operation (Le., at the end of each of years 1 through 5). 3. Determine the relevant (after-tax) cash inflow at the end of the project's life (i.e, at the project's disposal time, December 31, 2026). 5. Determine the undiscounted net cash flow (after tax) for the new machine and determine whether, on this basis, the old machine should be replaced. (For all requirements, do not round intermediate calculations, round your answers to the nearest whole dollar amount) Assume that it is January 1,2022, and that the Mendoza Company is considering the replacement of a machine that has been used for the past 3 years in a special project for the company. This project is expected to continue for an additional 5 years (i.e., until the end of 2026). Mendoza will either keep the existing machine for another 5 years ( 8 years tota) or replace the existing machine now with a new model that has a 5 -year estimated life. Pertinent facts regarding this decision are as follows: "Note: These amounts are used for depreciation calculations. Assume further that Mendoza is subject to a 40x income tax, for both ordinary income and gains/osses associated with disposal of machinery, and that all cash flows occur at the end of the year, except for the initial investment. Assume that straight-line depreciation is used for tax purposes and that any tax associated with the disposal of mochinery occurs at the same time as the related transaction. Required: 1. Determine relevant cash flows (after-tax) ot the time of purchase of the new machine (1.e., time 0: January 1,2022). 2. Determine the relevant (after-tax) cash inflow each year of project operation (i.e, at the end of each of years 1 through 5 ). 3. Determine the relevant (after-taxy cash infliow ot the end of the projects life (i.e, at the project's disposal time, December 31, 2026). 5. Determine the undiscounted net cash flow (after tax) for the new machine and determine whether, on this basis, the old machine shinidit ha reniscen 'Note: These amounts are used for depreciation calculations. Assume further that Mendoza is subject to a 40% income tax, for both ordinary income and gains/losses associated with disposal of machinery, and that-all cash flows occur at the end of the year, except for the initial investment. Assume that straight-line depreciation is used for tax purposes and that any tax associated with the disposal of machinery occurs at the same time as the related transaction. Required: 1. Determine relevant cash flows (after-tax) at the time of purchase of the new machine (i.e., time 0: January 1, 2022). 2. Determine the relevant (after-tax) cash inflow each year of project operation (Le., at the end of each of years 1 through 5). 3. Determine the relevant (after-tax) cash inflow at the end of the project's life (i.e, at the project's disposal time, December 31, 2026). 5. Determine the undiscounted net cash flow (after tax) for the new machine and determine whether, on this basis, the old machine should be replaced. (For all requirements, do not round intermediate calculations, round your answers to the nearest whole dollar amount)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Accounting The Managerial Chapters

Authors: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura

11th Global Edition

1292105879, 978-1292105871

More Books

Students also viewed these Accounting questions

Question

What resources will these tactics require?

Answered: 1 week ago

Question

What level of impact will this tactic make on the key public?

Answered: 1 week ago

Question

Have you used powerful language in your message?

Answered: 1 week ago