Port Pharmacy is considering the purchase of a copying machine, which it will make available to customers at a perâcopy charge. The copying machine has an initial cost of $8,500, an estimated useful life of five years, and an estimated salvage value of $2,500. The estimated annual revenue and expenses relating to operation of the machine are as follows:
Revenue...................................................................................................................... $9,000
Expenses other than depreciation................................................................................... $5,500
All revenue will be received in cash; expenses other than depreciation will be paid in cash. Depreciation will be computed by the straightâline method.
Compute for this proposal the expected:
a Annual increase in Portâs net income: $____________
a Annual net cash flow: $____________
b Payback period: ____________ years
c Return on average investment: ___________ %
d Net present value (round to the nearest dollar) of the proposed investment, discounted at an annual rate of 15% (Tables show that the present value of $1 to be received in five periods, discounted at 15%, is 0.497 and that the present value of a fiveâyear annuity of $1, discounted at 15%, is 3.352): $____________
Port Pharmacy is considering the purchase of a copying machine, which it will make available to customers at a perâcopy charge. The copying machine has an initial cost of $8,500, an estimated useful life of five years, and an estimated salvage value of $2,500. The estimated annual revenue and expenses relating to operation of the machine are as follows:
Revenue...................................................................................................................... $9,000
Expenses other than depreciation................................................................................... $5,500
All revenue will be received in cash; expenses other than depreciation will be paid in cash. Depreciation will be computed by the straightâline method.
Compute for this proposal the expected:
a Annual increase in Portâs net income: $____________
a Annual net cash flow: $____________
b Payback period: ____________ years
c Return on average investment: ___________ %
d Net present value (round to the nearest dollar) of the proposed investment, discounted at an annual rate of 15% (Tables show that the present value of $1 to be received in five periods, discounted at 15%, is 0.497 and that the present value of a fiveâyear annuity of $1, discounted at 15%, is 3.352): $____________
Related questions
Lexigraphic Printing Company is considering replacing a machinethat has been used in its factory for four years. Relevant dataassociated with the operations of the old machine and the newmachine, neither of which has any estimated residual value, are asfollows:
Old Machine | |
|---|---|
| Cost of machine, 10-year life | $88,825 |
| Annual depreciation (straight-line) | 8,700 |
| Annual manufacturing costs, excluding depreciation | 23,710 |
| Annual non-manufacturing operating expenses | 5,955 |
| Annual revenue | 74,035 |
| Current estimated selling price of machine | 29,835 |
New Machine | |
|---|---|
| Purchase price of machine, six-year life | $119,840 |
| Annual depreciation (straight-line) | 20,095 |
| Estimated annual manufacturing costs, excludingdepreciation | 6,920 |
Annual non-manufacturing operating expenses and revenue are notexpected to be affected by purchase of the new machine.
| Required: | |
| 1. | Prepare a differential analysis as of April 30 comparingoperations using the present machine (Alternative 1) withoperations using the new machine (Alternative 2). The analysisshould indicate the total differential income that would resultover the six-year period if the new machine is acquired. Refer tothe lists of Labels and Amount Descriptions for the exact wordingof the answer choices for text entries. For those boxes in whichyou must enter subtracted or negative numbers use a minus sign. Ifthere is no amount or an amount is zero, enter "0". A colon (:)will automatically appear if required. |
| 2. | List other factors that should be considered before a finaldecision is reached. |
