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In: Finance
Two years ago, a company purchased a machine. Currently, the machine can be sold for Rs....
Two years ago, a company purchased a machine. Currently, the machine can be sold for Rs. 2500 having a book value of Rs. 2100. The remaining life of the machine is 6 years and is depreciated using a straight-line depreciation method. Therefore, it records Rs. 350 per year as an annual depreciation expense. The company may sell the machine for Rs. 500 after it completes its useful life if it is not replaced with a new one which is technologically more advanced. A representative of high-tech manufacturing machines approaches the company and offers to replace its old machine with a new one for Rs. 8000. This new machine would be having Rs. 800 as an estimated scrap value at the end of its expected useful life of 6 years. The applicable depreciation rates according to 5-years MACRS class life are 20 percent, 32 percent, 19 percent, 12 percent, 11 percent and 6 percent, respectively. This new machine would help the company increase its revenues by 1000 annually and decrees its operating expenses by 1500 annually. However, the company would be needed to increase its inventories by Rs. 2000 as well as the accounts payables by Rs. 500. The composite WACC and marginal tax rate of the company are 11 percent and 40 percent, respectively. Being the financial consultant hired by the company, you are required to calculate net present value (NPV) and internal rate of return (IRR) and suggest whether the company should replace its old machine or not?
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jeff jeffy answered 2 years agoRelated Solutions
Two years ago, a company purchased a machine. Currently, the machine can be sold for Rs....
Two years ago, a company purchased a machine. Currently, the
machine can be sold for Rs. 2500 having a book value of Rs. 2100.
The remaining life of the machine is 6 years and is depreciated
using a straight-line depreciation method. Therefore, it records
Rs. 350 per year as an annual depreciation expense. The company may
sell the machine for Rs. 500 after it completes its useful life if
it is not replaced with a new one which is technologically...
Q. 1: Two years ago, a company purchased a machine. Currently, the machine can be sold...
Q. 1: Two years ago, a company purchased a
machine. Currently, the machine can be sold for Rs. 2500 having a
book value of Rs. 2100. The remaining life of the machine is 6
years and is depreciated using a straight-line depreciation method.
Therefore, it records Rs. 350 per year as an annual depreciation
expense. The company may sell the machine for Rs. 500 after it
completes its useful life if it is not replaced with a new one
which...
FinTronics currently uses an injection-molding machine that was purchased two years ago for $24,000. The machine...
FinTronics currently uses an injection-molding machine that was
purchased two years ago for $24,000. The machine is being
depreciated on a straight-line basis to a zero salvage value and it
has six years of remaining depreciable life (two years have already
passed) and its current market value is $3,000. If FinTronics keeps
the old machine it would have no salvage value in six years.
FinTronics has been offered a replacement machine that has a cost
of $24,000, an estimated useful...
The Wagner Company currently uses an injection-molding machine that was purchased 2 years ago. This machine...
The Wagner Company currently uses an injection-molding machine
that was purchased 2 years ago. This machine is being depreciation
on a straight-line basis, and it has 6 years of remaining life. Its
current book value is $2,100, and it can be sold for $2,500 at this
time. Thus, the annual depreciation expense is $2,100/6=$350 per
year. If the old machine is not replaced, it can be sold for $500
at the end of its useful life. Wagner is offered a...
The Wagner Company currently uses an injection-molding machine that was purchased 2 years ago. This machine...
The Wagner Company currently uses an injection-molding machine
that was purchased 2 years ago. This machine is being depreciation
on a straight-line basis, and it has 6 years of remaining life. Its
current book value is $2,100, and it can be sold for $2,500 at this
time. Thus, the annual depreciation expense is $2,100/6=$350 per
year. If the old machine is not replaced, it can be sold for $500
at the end of its useful life. Wagner is offered a...
The Wagner Company currently uses an injection-molding machine that was purchased 2 years ago. This machine...
The Wagner Company currently uses an injection-molding machine
that was purchased 2 years ago. This machine is being depreciated
on a straight-line basis, and it has 6-years of remaining life. Its
current book value is $2,100, and it can be sold for $2,500 at this
time. Thus, the annual depreciation expense is $350 [($2,100/6) =
$350 per year]. If the old machine is not replaced, it can be sold
for $500 at the end of its useful life.
Wagner is...
A Machine purchased six years ago for Rs 150,000 has been depreciated to a book value...
A Machine purchased six years ago for Rs 150,000 has been
depreciated to a book value of Rs 90,000. It originally has
projected life of 15 years and zero salvage value. A new machine
will cost Rs 350,000 and result in reduction of operating cost of
Rs 40,000 in first year which will increase @8% for next eight
years. The older machine could be sold for Rs 135,000. The cost of
capital is 10%. The new machine will be depreciated...
A machine currently in use was originally purchased 2 years ago for $40,000.The machine is being...
A machine currently in use was originally purchased 2 years ago
for $40,000.The machine is being depreciated under MACRS using a
5-year recovery period;it has 3 years of usable life remaining. The
current machine can be sold today to net $42,000 after removal and
cleanup costs.A new machine,using a 3-year MACRS recovery
period,can be purchased at a price of $140,000. It requires $10,000
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Two years ago, Sun company purchased a machine for $120,000. The company has learned that a...
Two
years ago, Sun company purchased a machine for $120,000. The
company has learned that a new machine is available for $145,000
today. It will be depreciated on a straight-line basis over 10
years and has no salvage value. Sun Company expects that the new
machine will produce earnings of $45,000 per year for the next 10
years. The old machine is expected to produce earnings of $25,000
per year. The old machine is being depreciated on a straight-line
basis...
The XYZ Company purchased a specialized machine three years ago for $25,000. This machine is not...
The XYZ Company purchased a specialized machine three years ago
for $25,000. This machine is not readily resalable and thus assumed
to have a salvage value of $0. Operating costs are expected to be
$10,000 next year and to increase by $800 per year thereafter (the
‘G’ term). The company has an opportunity to replace this machine
with another specialized one for a cost of $12,000. This machine
also has no salvage value, a useful life of 10 years, and...
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