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(0.7') 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 new. 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 12600 44600 12600 20861.60 12600 31469.60 12600 24189.60 12600 18989.60 12600 15287.20 12600 15276.80 12600 15287.20 3000 12137.24 Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is +3%. LINK TO TEXT LINK TO TEXT LINK TO TEXT X Your answer is incorrect. Try again. Using an EUAC comparison and a cash flow approach (insider's viewpoint approach), decide which is the more favorable alternative. Recommendation? Tkeep existing turret lathe and contract out | Show the EUAC values used to make your decision: 3000 Keep existing turret lathe and contract out: $6 12137.24 Replace with new turret lathe: $ 3-Year Property 5-Year Property 7-Year Property 1 2 33.33 44.45 14.81 7.41 20.00 32.00 19.20 11.52 11.52 5.76 4 14.29 24.49 17.49 12.49 8.93 8.92 8.93 6 8 4.46 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(0.7') 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 new. 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 12600 44600 12600 20861.60 12600 31469.60 12600 24189.60 12600 18989.60 12600 15287.20 12600 15276.80 12600 15287.20 3000 12137.24 Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is +3%. LINK TO TEXT LINK TO TEXT LINK TO TEXT X Your answer is incorrect. Try again. Using an EUAC comparison and a cash flow approach (insider's viewpoint approach), decide which is the more favorable alternative. Recommendation? Tkeep existing turret lathe and contract out | Show the EUAC values used to make your decision: 3000 Keep existing turret lathe and contract out: $6 12137.24 Replace with new turret lathe: $ 3-Year Property 5-Year Property 7-Year Property 1 2 33.33 44.45 14.81 7.41 20.00 32.00 19.20 11.52 11.52 5.76 4 14.29 24.49 17.49 12.49 8.93 8.92 8.93 6 8 4.46