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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

Business

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?

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