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Homework answers / question archive / L&M Ironworks L&M Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-operated lathe
L&M Ironworks
L&M Ironworks is considering a proposal to sell an existing lathe and purchase a new computer-operated lathe. Information on the existing lathe and the computer-operated lathe follow:
|
|
Existing lathe |
Computer-operated lathe |
|
Cost |
$100,000 |
$300,000 |
|
Accumulated depreciation |
60,000 |
0 |
|
Salvage value now |
20,000 |
|
|
Salvage value in 4 years |
0 |
60,000 |
|
Annual depreciation |
10,000 |
75,000 |
|
Annual cash operating costs |
200,000 |
50,000 |
|
Remaining useful life |
4 years |
4 years |
1. Refer to L&M Ironworks. What is the payback period for the computer-operated lathe?
2. Refer to L&M Ironworks. (Present value tables needed to answer this question.) If the company uses 10 percent as its discount rate, what is the net present value of the proposed new lathe purchase?
