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  • Additional Capital Budgeting Question For Practice

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    Shahzeen Raza
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    Kramer Tool Company currently owns a photocopying machine that was purchased for $70,000 and is being depreciated over 5 years to $0 salvage value. A competing firm is offering a new machine that costs $60,000 and can also be depreciated over 5 years to $0, and they have assured it can be sold after 5 years for $10,000. The new machine would save $20,000 annually in lower maintenance and operation costs. The firm will also find a buyer to purchase the old machine for $30,000. With a discount rate of 9% and tax rate of 48%, replacing the old machine with the new one would be financially beneficial for Kramer Tool Company

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    PRactice Additional Capital Budgeting Question for Practice

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    Additional Capital Budgeting Question for Practice

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    Kramer Tool Company currently owns a photocopying machine that was purchased for $70,000 and is being depreciated over 5 years to $0 salvage value. A competing firm is offering a new machine that costs $60,000 and can also be depreciated over 5 years to $0, and they have assured it can be sold after 5 years for $10,000. The new machine would save $20,000 annually in lower maintenance and operation costs. The firm will also find a buyer to purchase the old machine for $30,000. With a discount rate of 9% and tax rate of 48%, replacing the old machine with the new one would be financially beneficial for Kramer Tool Company

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    25 views1 page

    Additional Capital Budgeting Question For Practice

    Uploaded by

    Shahzeen Raza
    Kramer Tool Company currently owns a photocopying machine that was purchased for $70,000 and is being depreciated over 5 years to $0 salvage value. A competing firm is offering a new machine that costs $60,000 and can also be depreciated over 5 years to $0, and they have assured it can be sold after 5 years for $10,000. The new machine would save $20,000 annually in lower maintenance and operation costs. The firm will also find a buyer to purchase the old machine for $30,000. With a discount rate of 9% and tax rate of 48%, replacing the old machine with the new one would be financially beneficial for Kramer Tool Company

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
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    Additional Capital Budgeting Question for Practice

    1. The Kramer Tool Company has a photocopying machine that it purchased two years ago for $70,000. The machine is being depreciated straight line over 5 years to a zero salvage value. A competing firm is offering a new photocopying machine that cost $60,000 and can be depreciated over 5 years to a zero salvage value. Kramer has been assured that the new machine can be sold for $10,000 after five years. The new machine requires less maintenance and operator attendance and would result in cost savings of $20,000 annually. The firm selling the new machine has agreed to find a buyer who would pay $30,000 for the old machine. The discount rate is 9% and the tax rate is 48%. Should Kramer replace the old machine with the new one? Support your answer with appropriate calculations.

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