A company is considering buying a new piece of machinery. A 10% interest rate will be used in the computations. Two models of the machine are available.
(a) Determine which machine should be purchased, based on equivalent uniform annual cost.
(b) What is the capitalized cost of Machine I?
(c) Machine I is purchased and a fund is set up to replace Machine I at the end of 20 years. Compute the required uniform annual deposit.
(d) Machine I will produce an annual saving of material of $28,000. What is the rate of return if Machine I is installed?
(e) What will be the book value of Machine I after 2 years, based on sum-of-years'-digits depreciation? ( (f ) What will be the book value of Machine II after 3 years, based on double declining balance depreciation?
(g) Assuming that Machine II is in the 7-year property class, what would be the MACRS depreciation in the third year?