BSU Inc. wants to purchase a new machine for $31,200, excluding $1,300 of instal
ID: 2490530 • Letter: B
Question
BSU Inc. wants to purchase a new machine for $31,200, excluding $1,300 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
(a)
BSU Inc. wants to purchase a new machine for $31,200, excluding $1,300 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $7,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Explanation / Answer
Calculation of cash payback period of new machine Year Cash Flow Cumulative 0 -30500 (-31200-1300+2000) -30500 1 7000 -23500 2 7000 -16500 3 7000 -9500 4 7000 -2500 5 7000 4500 6 7000 11500 The Payback period for New Machine is 4+2500/7000 4.36 Years The Payback period for New Machine is 4.36 Years
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