A company is considering the replacemnt of one of its machinery which was purchasesd t

The cost of machine was Rs 1,500,000 with useful life of 8 years and salvage value of Rs R
The proposed machine cost Rs 3,000,000 with life of five years and no salvage value.
The existing machine can be sold out at price of Rs. 1,195,000
The new machine is expected to save Rs 350,000 in salaries and Rs 200,000 in electricity a
Depreciation is Straight line method.
Normal tax rate 40%, capital gain tax is 15%.
Cost of capital is 20%
Should we replace the existing machine?

Investment Required:
Cost of New machine 3,000,000
Proceeds from disposal of existing machine 1,173,250
(1,195,000-21,750)
Investment Required 1,826,750

year Savings Incremental De inc. Income EAT CFAT

1 550,000 450,000 100,000 60,000 510,000
2 550,000 450,000 100,000 60,000 510,000
3 550,000 450,000 100,000 60,000 510,000
4 550,000 450,000 100,000 60,000 510,000
5 550,000 450,000 100,000 60,000 510,000
5 -
PV of cash inflows
PV of cash outflows
NPV
ich was purchasesd three years ago.
salvage value of Rs Rs 300,000.
o salvage value.

00,000 in electricity annualy.

150,000 600,000
450,000
1,050,000
1,195,000
1,050,000
145,000
21,750

PV factor
0.8333 425,000.00
0.6944 354,166.67
0.5787 295,138.89
0.4823 245,949.07
0.4019 204,957.56

cash inflows 1,525,212.19

cash outflows 1,826,750.00
(301,537.81)
A company is considering the replacemnt of one of its machinery which was purchasesd t
The cost of machine was Rs 1,500,000 with useful life of 8 years and salvage value of Rs R
The proposed machine cost Rs 3,000,000 with life of five years and no salvage value.
The existing machine can be sold out at price of Rs. 850,000
The new machine is expected to save Rs 400,000 in salaries and Rs 250,000 in electricity a
Depreciation is Straight line method.
Normal tax rate 29%, capital gain tax is 15%.
Cost of capital is 10%
Should we replace the existing machine?

Investment Required:
Cost of New machine 3,000,000
Proceeds from disposal of existing machine 880,000
(850,000-(-30,000))
Investment Required 2,120,000

year Savings Incremental Dep inc. Income EAT CFAT

1 650,000 450,000 200,000 142,000 592,000

2 650,000 450,000 200,000 142,000 592,000
3 650,000 450,000 200,000 142,000 592,000
4 650,000 450,000 200,000 142,000 592,000
5 650,000 450,000 200,000 142,000 592,000
5 -
PV of cash inflows
PV of cash outflows
NPV
ich was purchasesd three years ago.
salvage value of Rs Rs 300,000.
o salvage value.

50,000 in electricity annualy.

150,000 600,000
450,000
1,050,000
850,000
1,050,000
(200,000)
Loss/tax be (30,000)

PV factor
@10%
0.9091 538,181.82
0.8264 489,256.20
0.7513 444,778.36
0.6830 404,343.97
0.6209 367,585.42

cash inflows 2,244,145.77

cash outflows 2,120,000.00
124,145.77
A company is considering the replacemnt of one of its machinery which was purchasesd t
The cost of machine was Rs 1,500,000 with useful life of 8 years and salvage value of Rs R
The proposed machine cost Rs 2,800,000 with life of five years and no salvage value.
The acquisition of machine will need an investment employees trainings and in working c
The existing machine can be sold out at price of Rs. 1,180,000
The new machine is expected to save Rs 400,000 in salaries and Rs 250,000 in electricity a
Depreciation is Straight line method.
Normal tax rate 29%, capital gain tax is 15%.
Cost of capital is 10%
Should we replace the existing machine?

Investment Required:
Cost of New machine 2,800,000
Proceeds from disposal of existing machine 1,160,500
(1180,000-19500)
Investment in Training and WC 1,100,000
Investment Required 2,739,500

year Savings Incremental Dep inc. Income EAT CFAT

1 650,000 450,000 200,000 142,000 592,000

2 695,500 450,000 245,500 174,305 624,305
3 744,185 450,000 294,185 208,871 658,871
4 796,278 450,000 346,278 245,857 695,857
5 852,017 450,000 402,017 285,432 735,432
5 700,000
PV of cash inflows
PV of cash outflows
NPV
 ich was purchasesd three years ago.
salvage value of Rs Rs 300,000.
o salvage value.
ings and in working capital amounting to Rs 400,000 and Rs 700,000 respectively.

50,000 in electricity annualy. There is estimated growth in this savings @ 7% per year.

150,000 600,000
450,000
1,050,000
1,180,000
1,050,000
130,000
Loss/tax be 19,500

PV factor
@10%
0.9091 538,181.82
0.8264 515,954.55
0.7513 495,019.80
0.6830 475,279.93
0.6209 456,645.63
0.6209 434,644.93
cash inflows 2,915,726.65
cash outflows 2,739,500.00
176,226.65