Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Robinson Corporation currently processes seafood with a machine it purchased several years ago. The machine, which originally cost $1,000,000, currently has a book value of

Robinson Corporation currently processes seafood with a machine it purchased several years ago. The machine, which originally cost $1,000,000, currently has a book value of $400,000. Robinson is considering replacing the machine with a newer, more efficient one. The new machine will cost $1,400,000 and will require an additional $100,000 for delivery and installation. The new machine will also require Robinson to increase its investment in receivables and inventory by $400,000. The new machine will be depreciated on a straight-line basis over five years to a zero balance. Robinson expects to sell the existing machine for $300,000. Robinsons marginal tax rate is 25 percent and the required rate of return for Robinson is 12 percent. If Robinson purchases the new machine, annual revenues are expected to increase by $200,000 and annual operating costs (exclusive of depreciation) are expected to decrease by $50,000. Annual revenue and operating costs are expected to remain constant at this new level over the five-year life of the project. After five years, the new machine will be completely depreciated and is expected to be sold for $200,000. (Assume that the existing unit is being depreciated at a rate of $80,000 per year.)

  1. Determine the payback period of the project.

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

Intermediate accounting

Authors: J. David Spiceland, James Sepe, Mark Nelson

7th edition

978-0077614041, 9780077446475, 77614046, 007744647X, 77647092, 978-0077647094

More Books

Students also viewed these Accounting questions

Question

What is a conformed dimension? AppendixLO1

Answered: 1 week ago

Question

In which ways would you measure training success? Explain.

Answered: 1 week ago

Question

Evaluate Meyers and Browns approach to career development.

Answered: 1 week ago