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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?
Expert Solution
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