Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The bookstore has a copier machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6

The bookstore has a copier machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. It was originally bought for SAR 2,633 and it could be sold for SAR 500 at the end of its useful life. If sold now, the machine could be sold at a market value of SAR 2,500.

The bookstore found another copier machine that has a cost of SAR 8,000, an estimated useful life of 6 years, and an estimated salvage value of SAR 800. The new machine would permit an output expansion, so sales would rise by SAR 1,000 per year. Even so, the new machines greater efficiency would cause operating expenses to decline by SAR 1,500 per year. The new machine would require that inventories and account payables increase immediately by SAR 2,000 and SAR 500 each year, respectively. At the end of the new machines life, the bookstore will be able to recover 100% of its investment in inventories and account payables. The bookstores tax rate is 40%, and its WACC is 15%. The bookstore will depreciate the new machine using the accelerated depreciation. The depreciation rates used are as follows:

Period

year1

year2

year3

year4

year5

year6

Depreciation rate

20%

32%

19%

12%

11%

6%

Should the bookstore replace the old copier machine solve in excel?

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

Students also viewed these Finance questions

Question

Explain the process of biochemistry

Answered: 1 week ago