Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please show the steps that need to be done I have attached my excel work as well please explain where I am making a mistake

Please show the steps that need to be done

I have attached my excel work as well please explain where I am making a mistake

image text in transcribedimage text in transcribed

Problem 6-29 Mutually exclusive investments and project lives As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $62,000. Its operating costs are $21,600 a year, but at the end of five years, the machine will require a $19,200 overhaul (which is tax deductible). Thereafter, operating costs will be $30,800 until the machine is finally sold in year 10 for $6,200. The older machine could be sold today for $25,800. If it is kept, it will need an immediate $24,000 (tax-deductible) overhaul. Thereafter, operating costs will be $32,700 a year until the machine is finally sold in year 5 for $6,200. Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 12%. a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Equivalent Annual Cost $ 24,999.31 Sell new machine Sell old machine $ 26,258.06 sell new maching selling old maching 3 4 5 5 7 yo y1 y2 y3 y4 3 yo y1 y2 y3 y4 y5 y6 y7 y8 y9 24980 cash from new machine sale minus tax and minus repair of old machine 20382 29196.43 19285.7143 26068.24 19285.7143 23275.21 19285.7143 20781.44 19285.7143 overhaul cost y5 18554.86 19285.7143 10894.6 amount recieved for selling old machine in year 5 3518.0465 15604.2385 tax from sale 738.78977 13932.3558 pv -90116.93 12439.6034 pv annuity factor = (1-(1+r)^-n)/r 0.567427 0.432573 3.6047762 11106.7888 eac 24999.312 y10 9916.77569 recieving from selling new machine year 10 1996.23407 tax 419.209154 pv -148363.9 -14836.4 pv annuity factor 0.321973237 0.678027 5.65022303 eac 26258.0616 1 2 B 4 5 5 7 3

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_2

Step: 3

blur-text-image_3

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

Personal Finance For Dummies

Authors: Eric Tyson

9th Edition

1119517893, 978-1119517894

More Books

Students also viewed these Finance questions