Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost

Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $180,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $94,000 per year; and Machine 360-6, which has a cost of $380,000, a 6-year life, and after-tax cash flows of $108,000 per year. Knitting machine prices are not expected to rise, because inflation will be offset by cheaper components (microprocessors) used in the machines.

1. Assume that Filkins' cost of capital is 16%. Calculate the two projects' NPVs. Do not round intermediate calculations. Round your answers to the nearest cent. Machine 190-3 Machine 360-6

2. By how much would the value of the company increase if it accepted the better machine? Do not round intermediate calculations. Round your answer to the nearest cent.

3. What is the equivalent annual annuity for each machine? Do not round intermediate calculations. Round your answer to the nearest cent.

Machine 190-3
Machine 360-6

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

The Essentials Of Machine Learning In Finance And Accounting

Authors: Mohammad Zoynul Abedin, M. Kabir Hassan, Petr Hajek, Mohammed Mohi Uddin

1st Edition

0367480816, 978-0367480813

More Books

Students also viewed these Finance questions

Question

What are three types or forms of the SaaS model?

Answered: 1 week ago