New microelectronics testing equipment was purchased 2 years ago by Mytesmall In
ID: 2740836 • Letter: N
Question
New microelectronics testing equipment was purchased 2 years ago by Mytesmall Industries at a cost of $600,000. At that time, it was expected to be used for 5 years and then traded or sold for its salvage value of $75,000. Expanded business in newly developed international markets is forcing the decision to trade now for a new unit at a cost of $800,000. The current equipment could be retained, if necessary, for another 2 years, at which time it would have a $5000 estimated market value. The current unit is appraised at $350,000 on the international market, and if it is used for another 2 years, it will have M&O costs (exclusive of operator costs) of $125,000 per year. Determine the values of P, n, S, and AOC for this defender if a replacement analysis were performed today.
Explanation / Answer
P = 752500, n= 5-2=3 years, AOC = 250000, S=355000.
Since, the current machine is appraised as in the question as given so scrap value will increase by 355000. We ignore Discount factor, as investment is made for now but same is not static and value is to be computed for now.
P=market value, n=years, AOC= annual operating cost, and S= salvage value Cost of acquisition 600000 Sunk cost =D6+D12 Useful life 5 Salvage value 75000 Depriciation =+(D6-D8)/5 Accumulated depriciation till date =+D9+D9 value of asset today =+D6-D10 Cost of new unit 800000 Salvage value 5000 Useful life 2 Depriciation =+(D12-D13)/2 Appraisal of current unit 350000 Present value of machine =+D12-D15+D16 Annaul operating cost 125000