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DedPeter [7]
2 years ago
15

Projects with different lives: You are trying to choose between purchasing one of two machines for a factory. Machine A costs $1

5,000 to purchase and has a three-year life. Machine B costs $17,700 to purchase but has a four year life. Regardless of which machine you purchase, it will have to be replaced at the end of its operating life. Which machine should you choose? Assume a marginal tax rate of 35percent and a discount rate of 15percent
Business
1 answer:
Dmitry [639]2 years ago
3 0

Answer:

Machine B

Explanation:

In this question we have to find out the equivalent annual cost which is shown below:

Equivalent annual cost = (Interest Rate × Net present value) ÷ {1 - (1 + interest rate)^-number of years}

For Machine A, it would be

= (15% × -$15,000) ÷ {1 - (1 + 0.15)^-3}

= ($2,250) ÷ (1 - 0.6575162324 )

= ($2,250) ÷ (0.3424837676 )

= -$6,569.65

For Machine B, it would be

= (15% × -$17,700) ÷ {1 - (1 + 0.15)^-4}

= ($2,655) ÷ (1 - 0.5717532456 )

= ($2,655) ÷ (0.4282467544  )

= -$6,199.70

As we can see that the equivalent annual cost has less in Machine B so it would be choose

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On January 1, 2019, Oriole Company purchased the following two machines for use in its production process.
ivolga24 [154]

Answer and Explanation:

The journal entries are shown below:

1  Equipment   $53,420

     To Cash  $53,420

(Being the equipment is purchased for cash is recorded)

The computation is given below:

= Cash price of machine + sales tax + shipping cost + insurance during shipping + installation and testing cost

= $49,500 + $3,650 + $100 + $60 + $110

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2. Depreciation expense $9,614

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(Being the depreciation expense is recorded)

The computation is shown below:

= ($53,420 - $5,350) ÷ ( 5 years)

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2 years ago
Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. the actual end-of
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Use the formula of the present value of an annuity ordinary which is
Pv=pmt [(1-(1+r)^(-n))÷r]
Pv present value 4500
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N 4 equal annual installments
Solve the formula for PMT
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Suppose you find $20. if you choose to use the $20 to go to the football game, your opportunity cost of going to the game is <u>$20</u>.

The opportunity cost is time spent analyzing and that money to spend on something else. A farmer chooses to plant wheat; the opportunity fee is planting a specific crop or alternate use of the assets (land and farm machine).

Opportunity value is a financial term that refers back to the cost of what you need to give up so that it will choose something else. In a nutshell, it is a price of the road not taken.

Whilst economists talk to the “opportunity cost” of a useful resource, they imply the fee of the following-maximum-valued opportunity use of that aid. If, for an instance, you spend time and money going to a film, you cannot spend that point at domestic analyzing an ebook, and also you cannot spend the cash on something else.

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6 0
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