Renzoni Incorporated, has invested in new pasta manufacturing equipment at a cost of $72,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow: Annual sales Labor costs Depreciation of equipment Operating income Income taxes Net income The estimated payback of the investment in the pasta equipment is: Multiple Choice 3.0 years. 4.0 years $ 132,000 (108,000) (9,000) $ 15,000 (6,000) $ 9,000 Brow 7 of 15 *** Maut

Renzoni Incorporated, has invested in new pasta manufacturing equipment at a cost of $72,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow: Annual sales Labor costs Depreciation of equipment Operating income Income taxes Net income The estimated payback of the investment in the pasta equipment is: Multiple Choice 3.0 years. 4.0 years $ 132,000 (108,000) (9,000) $ 15,000 (6,000) $ 9,000 Brow 7 of 15 *** Maut

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 18P: Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting...

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Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
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Accounting Question
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