Sangeeta Industries is considering replacing an aging Evaporator that is present
ID: 2498016 • Letter: S
Question
Sangeeta Industries is considering replacing an aging Evaporator that is presently used in its production process. The following information is available:
Old Evaporator
Replacement Machine
Original cost
$55,000
$45,000
Remaining useful life in years
3
3
Current age in years
3
0
Book value
$33,000
Current disposal value in cash
$9,000
Future disposal value in cash (in 5 years)
$0
$0
Annual cash operating costs
8,500
$3,500
Sunk costs would amount to
A) $55,000
B) $33,000
C) $9,000
When the market rate of interest was 12%, Patel Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was
a.
$ 321,970
b.
$1,000,000
c.
$ 943,494
d.
$621,524
When the market rate of interest was 11%, Shah Corporation issued $100,000, 8%, 10-year bonds that pay interest semiannually. Using the straight-line method, the amount of discount or premium to be amortized each interest period would be
a.
$4,000
b.
$896
c.
$17,926
d.
$1,793
Old Evaporator
Replacement Machine
Original cost
$55,000
$45,000
Remaining useful life in years
3
3
Current age in years
3
0
Book value
$33,000
Current disposal value in cash
$9,000
Future disposal value in cash (in 5 years)
$0
$0
Annual cash operating costs
8,500
$3,500
Explanation / Answer
Sunk cost would amount to B. $ 33,000. Sunk cost is measured by book value of fixed assets.
c. $ 943,494 is the correct answer.( 110,000 X 5.650 + 1,000,000 X 0.322)
The correct answer is d. $ 1,793 ( annual amount of discount amortized)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.