{"id":53023,"date":"2022-04-16T11:50:17","date_gmt":"2022-04-16T11:50:17","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/lombard-company-is-contemplating-the-purchase-of-a-new-high-speed\/"},"modified":"2022-04-16T11:50:17","modified_gmt":"2022-04-16T11:50:17","slug":"lombard-company-is-contemplating-the-purchase-of-a-new-high-speed","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/lombard-company-is-contemplating-the-purchase-of-a-new-high-speed\/","title":{"rendered":"Lombard company is contemplating the purchase of a new\u200b high-speed"},"content":{"rendered":"
\n

\u00a0\u00a0<\/p>\n

Lombard Company is contemplating the purchase of a new\u200b high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $55,300\u200b; it was being depreciated\u200b straight-line for 5 years. The existing grinder is expected to have a usable life of 5 more years. The new grinder costs $105,800 and requires $4,500 in installation\u200b costs; it has a\u200b 5-year usable life andwould be depreciated on a\u200b straight-line basis. Lombard can currently sell the existing grinder for $70,900 without incurring any removal or cleanup costs. To support the increased business resulting from purchase of the new\u200b grinder, accounts receivable would increase by $40,400\u200b, inventories by $29,000\u200b, and accounts payable by $57,600. At the end of 5\u200b years, the existing grinder would have a market value of\u200b zero; the new grinder would be sold to net $29,200 after removal and cleanup costs and before taxes. The firm is subject a 40% tax rate. The estimated earnings before\u200b depreciation, interest, and taxes over the 5 years for both the new and the existing grinder are shown in the following table<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Year New grinder \u00a0Existing grinder \u00a0\u00a01 $43,600 \u00a0$25,200 \u00a0\u00a02 43600 \u00a023200 \u00a0\u00a03 43600 \u00a021200 \u00a0\u00a04 43600 \u00a019200 \u00a0\u00a05 43600 \u00a017200 \u00a0\u00a0\u00a0<\/p>\n

a.<\/strong> Calculate the initial investment<\/em> associated with replacement of the old machine by the new one.<\/p>\n

Calculate the initial investment\u200b below:\u2003\u2003\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Cost of new asset:<\/p>\n

\u00a0<\/p>\n

Installation costs:<\/p>\n

\u00a0<\/p>\n

Total cost of new asset:<\/p>\n

\u00a0<\/p>\n

Proceeds from sale of old asset:<\/p>\n

\u00a0<\/p>\n

Tax on sale of old asset:<\/p>\n

\u00a0<\/p>\n

Total proceeds, sale of old asset:<\/p>\n

\u00a0<\/p>\n

Change in working capital:<\/p>\n

\u00a0<\/p>\n

Initial investment:<\/p>\n

b.<\/strong> Determine the incremental operating cash inflows<\/em> associated with the proposed replacement.\u200b (Note: Be sure to consider the depreciation in year\u200b 6.)<\/p>\n

Calculate the cash flows with the old machine\u200b below:\u2003\u2003\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

1<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

2<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

3<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

4<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

5<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

6<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes
Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

Calculation the cash flows with the new machine and the incremental cash flows\u200b below:\u2003\u2003\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

1<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Incremental cash flows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

2<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Incremental cash flows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

3<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Incremental cash flows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

4<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Incremental cash flows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

5<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Incremental cash flows<\/p>\n

$<\/p>\n

\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Year<\/strong><\/p>\n

6<\/strong><\/p>\n

\u00a0<\/p>\n

Profit before depreciation and taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Depreciation<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit before taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Net profit after taxes<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Operating cash inflows<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Incremental cash flows<\/p>\n

$<\/p>\n

c.<\/strong> Determine the terminal cash flow<\/em> expected at the end of year 5 from the proposed grinder replacement.<\/p>\n

Calculate the terminal cash flow\u200b below:\u2003\u2003\u200b(Round to the nearest\u200b dollar.)<\/p>\n

\u00a0\u00a0\u00a0<\/p>\n

Proceeds from sale of new asset<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Tax on sale of new asset<\/p>\n

\u00a0<\/p>\n

Total proceeds from sale of new asset<\/p>\n

$<\/p>\n

\u00a0<\/p>\n

Change in working capital<\/p>\n

\u00a0<\/p>\n

Terminal cash flow<\/p>\n

$<\/p>\n

d.<\/strong> Depict on a time line the relevant cash flows<\/em> associated with the proposed grinder replacement decision.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

\u00a0\u00a0 Lombard Company is contemplating the purchase of a new\u200b high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $55,300\u200b; it was being depreciated\u200b straight-line for 5 years. The existing grinder is expected to have a usable life of 5 more years. The […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-53023","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/53023","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=53023"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/53023\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=53023"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=53023"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=53023"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}