Sano Ltd. is considering replacing a machine acquired 2 years ago at a cost of $62,000. The market value of this machine is now $10,000. The old machine could still be used for another 4 years, and the original estimated residual value was $2,000. However, managers wish to buy a new machine because they want to reduce manufacturing costs. The best machine available on the market costs $78,000. It is expected to last for 4 years, the straight-line amortization method would be used for the new machine, and the residual value at the end of 4 years would be $6,000.
Currently, the price charged for 1 unit of the Sano's motor is $200, and 1,000 units are sold each year. The production costs per unit are:
Use the information below to answer Questions 13 - 17. Sano Ltd. is considering replacing a machine acquired 2 years ago at a cost of $62,000. The market value of this machine is now $10,000. The old machine could still be used for another 4 years, and the original estimated residual value was $2,000. However, managers wish to buy a new machine because they want to reduce manufacturing costs. The best machine available on the market costs $78,000. It is expected to last for 4 years, the straight-line amortization method would be used for the new machine, and the residual value at the end of 4 years would be $6,000. Currently, the price charged for 1 unit of the Sands motor is $200, and 1,000 units are sold each year. The production costs per unit are: Direct materials $20 Direct labour $40 Overhead applied based on 150% of direct labour At this sales level, 75% of the manufacturing overhead costs are xed. With the new machine, managers expect the inventory requirement will be decreased by $4,000 at the beginning, but the level of inventory will resume to the previous level by the end of the 4th year. In addition, Sano will be able to save the prime cost by 20% and the variable manufacturing overhead costs by 60%. The desired rate of return is 8%. The company's policy is to accept any new project with a payback period less than 3.5 years. Please do not enter "$ , U", or " ," for all your answers. Please enter an absolute number for positive, increase, or cash inow, and enter a negative sign " " for negative, decrease, cost, or cash outow. Calculate the total manufacturing xed overhead cost: Calculate the contribution margin per unit: Calculate the sale breakeven in units: units Calculate the markup percentage based on the total manufacturing cost: (Rounded to 2 decimal points) % Prepare a net present value (N PV) for the decision to purchase the new machine. (Round it to the nearest dollar.) Please do not enter "$", "( )", or , for all your answers. Please enter an absolute number for positive, increase or cash inow, and enter a negative sign " " for negative, decrease, cost, or cash outow. $ Calculate the net initial investment: $ Calculate the total annual cost saving: Calculate the present value ofthe total annual $ cost savings: (Round it to the nearest dollar.) $ Calculate the total terminal value: Calculate the present value of the total terminal $ value: (Round it to the nearest dollar.) Net Present Value: (Round it to the nearest $ dollar.) Please do not enter "$", "( )", or " ," for all your answers. Please enter an absolute number for positive, increase or cash inow, and enter a negative sign " " for negative, decrease, cost, or cash outow. Calculate the point of indifference in terms of annual cash ow: (Rounded to the nearest dollar) Determine the payback period: (Rounded to 4 decimal points) years Determine the IRR to 2 decimal points. % Calculate the incremental accounting income (loss) for the rst year. Please do not enter "$", "( )", or " ," for all your answers. Please enter an absolute number for positive, increase or cash inow, and enter a negative sign " " for negative, decrease, cost, or cash outow. Calculate the incremental cost savings: Calculate the incremental depreciation expense: Calculate the gain/loss of the sale of existing machine: Calculate the total incremental accounting income
