(solution) I need the answers to this spreadsheet, gray boxes only.

(solution) I need the answers to this spreadsheet, gray boxes only.

I need the answers to this spreadsheet, gray boxes only.

SHAMROCK MANUFACTURING
Facts:
Old machine historical cost
Old machine current book value
Remaining useful life of asset (2 years)
Annual depreciation
straight-line depreciation method
Market value
Salvage value at end of useful life $150,000 New equipment
60,000 Useful life of new equipment (2 years) $90,000 $30,000 Annual depreciation
$45,000
straight-line depreciation method
$36,000 Annual reduction in direct MFG labor costs
$15,000
Annual reduction in electricity
$17,500
0 Salvage value at end of useful life
0
YEAR ONE #1
Cash operating costs
Direct manufacturing costs
Electricity
Depreciation
Loss on disposal of old machine
Total costs New
Equipment
(replace) Old
Equipment
(keep) Cost
Difference by
replacing $0 ($15,000)
(17,500)
0
24,000
($8,500) ($15,000)
(17,500)
24,000
($8,500) Discuss #1 and #2 in the
analytical section of your
case analysis. YEAR TWO #2
Cash operating costs
Direct manufacturing costs
Electricity
Depreciation
Current disposal price of old machine
Total relevant cash flow #3 New
Equipment
(replace) Old
Equipment
(keep) (35,000)
(36,000)
($71,000) "WHAT IF" THE NEW MACHINE ONLY COST –>?
WITH THE SAME 2 YEAR USEFUL LIFE 0
$0 Cash Outflow
by replacing
$0
(35,000)
0
(36,000)
($71,000) Note: The book value of the
old machine $60,000 would
be written off as depreciation
over 2 years under the keep
option, or all at once in the
current year under replace
option so net effect is the
same, so it is irrelevant in
this analysis $77,000
YEAR ONE New
Equipment
(replace)
Cash operating costs
Direct manufacturing costs
Electricity
Depreciation
Loss on disposal of old machine
Total costs Old
Equipment
(keep) (17,500)
24,000
$6,500 $0 Cost
Difference by
replacing
$0
(17,500)
0
24,000
$6,500 Compare #1 and #2 to the
"what if" results in #3 in the
analytical section of your
case analysis. YEAR TWO
New
Equipment
(replace)
Cash operating costs
Direct manufacturing costs
Electricity
Depreciation
Current disposal price of old machine
Total relevant cash flow Old
Equipment
(keep) $0 (36,000)
($36,000) 0
$0 Cash Outflow
by replacing
$0
0
0
(36,000)
($36,000) In the conclusion section
of your case analysis, in
your opinion, what
decision should be
made?