{"id":213127,"date":"2025-05-09T12:36:22","date_gmt":"2025-05-09T12:36:22","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=213127"},"modified":"2025-05-09T12:36:24","modified_gmt":"2025-05-09T12:36:24","slug":"the-management-of-ballard-microbrew-is-considering-the-purchase-of-an-automated-bottling-machine-for-66000-the-machine-would-replace-an-old-piece-of-equipment-that-costs-17000-per-year-to-operate","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/05\/09\/the-management-of-ballard-microbrew-is-considering-the-purchase-of-an-automated-bottling-machine-for-66000-the-machine-would-replace-an-old-piece-of-equipment-that-costs-17000-per-year-to-operate\/","title":{"rendered":"The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $66,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value."},"content":{"rendered":"\n

The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $66,000<\/em>. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $29,000. The new machine would have a useful life of 10 years with no salvage value.<\/p>\n\n\n\n

Required:<\/p>\n\n\n\n

What is the annual depreciation expense associated with the new bottling machine?
What is the annual incremental net operating income provided by the new bottling machine?
What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?
What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)<\/p>\n\n\n\n

The Correct Answer is Explanation is :<\/mark><\/strong><\/p>\n\n\n\n

To answer this scenario thoroughly, we\u2019ll address each part step-by-step, including calculations and explanations.<\/p>\n\n\n\n

\n\n\n\n

1. What is the annual depreciation expense associated with the new bottling machine?<\/strong><\/h3>\n\n\n\n

Answer: $6,600<\/strong><\/p>\n\n\n\n

Explanation (300 words):<\/strong><\/p>\n\n\n\n

Depreciation is a method of allocating the cost of a tangible asset over its useful life. In this case, Ballard MicroBrew is purchasing a new bottling machine for $66,000<\/strong>, and it has a useful life of 10 years<\/strong> with no salvage value<\/strong>. Since it’s straight-line depreciation (the most common assumption unless stated otherwise), the formula is: Annual Depreciation=Cost\u2212Salvage ValueUseful Life\\text{Annual Depreciation} = \\frac{\\text{Cost} – \\text{Salvage Value}}{\\text{Useful Life}} Annual Depreciation=66,000\u2212010=6,600\\text{Annual Depreciation} = \\frac{66,000 – 0}{10} = 6,600<\/p>\n\n\n\n

This annual depreciation expense represents a non-cash charge, meaning it doesn\u2019t directly impact cash flow but does affect accounting profit and tax calculation.<\/p>\n\n\n\n

\n\n\n\n

2. What is the annual incremental net operating income provided by the new bottling machine?<\/strong><\/h3>\n\n\n\n

Answer: $2,400<\/strong><\/p>\n\n\n\n

Explanation:<\/strong><\/p>\n\n\n\n

Let\u2019s compare the annual operating costs before and after the investment:<\/p>\n\n\n\n

    \n
  • Old machine operating cost:<\/strong> $17,000\/year<\/li>\n\n\n\n
  • New machine operating cost:<\/strong> $8,000\/year<\/li>\n\n\n\n
  • Annual savings:<\/strong> $17,000 – $8,000 = $9,000<\/li>\n<\/ul>\n\n\n\n

    Now subtract the depreciation<\/strong> of the new machine (non-cash expense) to calculate incremental NOI<\/strong>: Incremental NOI=9,000\u22126,600=2,400\\text{Incremental NOI} = 9,000 – 6,600 = 2,400<\/p>\n\n\n\n

    \n\n\n\n

    3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return?<\/strong><\/h3>\n\n\n\n

    Answer: $37,000<\/strong><\/p>\n\n\n\n

    Explanation:<\/strong><\/p>\n\n\n\n

    The initial investment<\/strong> for calculating the simple rate of return is the net investment<\/strong> required:<\/p>\n\n\n\n

      \n
    • Cost of new machine:<\/strong> $66,000<\/li>\n\n\n\n
    • Salvage value of old machine (recovered upfront):<\/strong> $29,000<\/li>\n<\/ul>\n\n\n\n

      Net Initial Investment=66,000\u221229,000=37,000\\text{Net Initial Investment} = 66,000 – 29,000 = 37,000<\/p>\n\n\n\n

      \n\n\n\n

      4. What is the simple rate of return on the new bottling machine?<\/strong><\/h3>\n\n\n\n

      Answer: 6.5%<\/strong><\/p>\n\n\n\n

      Explanation:<\/strong><\/p>\n\n\n\n

      The simple rate of return<\/strong> is calculated as: Simple Rate of Return=Incremental NOIInitial Investment\\text{Simple Rate of Return} = \\frac{\\text{Incremental NOI}}{\\text{Initial Investment}} =2,40037,000\u22480.06486=6.5%= \\frac{2,400}{37,000} \\approx 0.06486 = 6.5\\%<\/p>\n\n\n\n

      \n\n\n\n

      Summary of Answers:<\/strong><\/h3>\n\n\n\n
        \n
      1. Annual Depreciation Expense:<\/strong> $6,600<\/li>\n\n\n\n
      2. Annual Incremental Net Operating Income:<\/strong> $2,400<\/li>\n\n\n\n
      3. Initial Investment for Simple Rate of Return:<\/strong> $37,000<\/li>\n\n\n\n
      4. Simple Rate of Return:<\/strong> 6.5%<\/strong><\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

        The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $66,000. The machine would replace an old piece of equipment that costs $17,000 per year to operate. The new machine would cost $8,000 per year to operate. The old machine currently in use is fully depreciated and could be sold […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-213127","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/213127","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=213127"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/213127\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=213127"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=213127"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=213127"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}