Exercise D9-1 Riverbed Industries is considering the purchase of new equipment c

Question

Exercise D9-1

Riverbed Industries is considering the purchase of new equipment costing $1,050,000 to replace existing equipment that will be sold for $153,000. The new equipment is expected to have a $226,000 salvage value at the end of its 4-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 31,500 units annually at a sales price of $29 per unit. Those units will have a variable cost of $11 per unit. The company will also incur an additional $98,000 in annual fixed costs.

Identify the amount and timing of all cash flows related to the acquisition of the new equipment. (Enter negative amounts using a negative sign preceding the number e.g. -45.)

Cash Flow Timing Amount Purchase of new equipment

Year 0Year 1Year 2Year 3Year 4Years 1-4

$

Salvage of old equipment

Year 0Year 1Year 2Year 3Year 4Years 1-4

Sales revenue

Year 0Year 1Year 2Year 3Year 4Years 1-4

Variable costs

Year 0Year 1Year 2Year 3Year 4Years 1-4

Additional fixed costs

Year 0Year 1Year 2Year 3Year 4Years 1-4

Salvage of new equipment

Year 3Year 2Year 4Years 1-4Year 1Year 0

Explanation / Answer

Identify the amount and timing of all cash flows related to the acquisition of the new equipment.

Cash flow Timing Amount Purchase of new equipment Year 0 -1050000 Salvage of old equipment Year 0 153000 Sales revenue Year 1-4 913500 Variable costs Year 1-4 -346500 Additional fixed costs Year 1-4 -98000 Salvage of new equipment Year 4 226000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.