Chapter 11, Problem 019 A division of Raytheon owns a 5-year-old turret lathe used to manufacture fabricated metal products that was purchased for $96,000 and now has a financial reporting (non-tax) book value of $24,000. It has been depreciated for tax purposes as MACRS-GDS 7-year property. It has a current market value of $18,000. The expected decline in market value is $3,000 per year from this point forward to a minimum of $3,000. O&M costs are $8,000 per year. Additional capability is needed. If the old lathe is kept, that new capability will be contracted out for $13,000, assumed payable at the end of each year. A new turret lathe has the increased capability to fulfill all needs, replacing the existing turret lathe and requiring no outside contracting. It can be purchased for $65,000 and will have an expected life of 8 years. Its market value is expected to be $65,000(0.7t) at the end of year t. Annual O&M costs are expected to equal $10,000. If the after-tax MARR is 9 percent, the tax rate is 40 percent, and the planning horizon is 8 years, determine whether to keep and use a contractor or to sell and buy nevw. Click here to access the TVM Factor Table Calculator Your answer is partially correct. Try again Clearly show the cash flow profile for each alternative using the cash flow approach (insider's viewpoint approach) EOY Keep existing turret lathe and contract out Replace with new turret lathe 3425 -47000 -17571 6285 19287 6285 21000 5453 4 -21000 -6753 21000 7678 6 -21000 7681 -21000 -7678 Chapter 11, Problem 019 A division of Raytheon owns a 5-year-old turret lathe used to manufacture fabricated metal products that was purchased for $96,000 and now has a financial reporting (non-tax) book value of $24,000. It has been depreciated for tax purposes as MACRS-GDS 7-year property. It has a current market value of $18,000. The expected decline in market value is $3,000 per year from this point forward to a minimum of $3,000. O&M costs are $8,000 per year. Additional capability is needed. If the old lathe is kept, that new capability will be contracted out for $13,000, assumed payable at the end of each year. A new turret lathe has the increased capability to fulfill all needs, replacing the existing turret lathe and requiring no outside contracting. It can be purchased for $65,000 and will have an expected life of 8 years. Its market value is expected to be $65,000(0.7t) at the end of year t. Annual O&M costs are expected to equal $10,000. If the after-tax MARR is 9 percent, the tax rate is 40 percent, and the planning horizon is 8 years, determine whether to keep and use a contractor or to sell and buy nevw. Click here to access the TVM Factor Table Calculator Your answer is partially correct. Try again Clearly show the cash flow profile for each alternative using the cash flow approach (insider's viewpoint approach) EOY Keep existing turret lathe and contract out Replace with new turret lathe 3425 -47000 -17571 6285 19287 6285 21000 5453 4 -21000 -6753 21000 7678 6 -21000 7681 -21000 -7678
