Acompany is considering buying a new piece of machinery. a 10% interest rate will be used in the computations. two models of the machine are available.
machine i
initial cost: $80,000
end -of -useful –life salvage value, s: 20,000
annual operating cost 18,000
useful life, in years 20
machine ii
initial cost: $100,000
end -of -useful –life salvage value, s: 25,000
annual operating cost: 15,000 first 10 years, 20,000 thereafter
useful life, in years: 25
(a) determine which machine should be purchased, based on equivalent uniform annual cost.
(b) what is the capitalized cost of machine i?
(c) machine i is purchased and a fund is set up to replace machine i at the end of 20 years. compute the required uniform annual deposit.
(d) machine i will produce an annual saving of material of $28,000. what is the rate of return if machine i is installed?
(e) what will be the book value of machine i after 2 years, based on sum -of -years' -digits depreciation?
(f) what will be the book value of machine ii after 3 years, based on double declining balance depreciation?
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