QUESTION 21 You operate an auto car wash on Wallsend and you have used the current...

Transcribed Image Text:

QUESTION 21 You operate an auto car wash on Wallsend and you have used the current car washing machine CLEAN for almost 10 years. The machine is working slowly and therefore you would like to consider the replacement of the existing machine. After conducting research, you find the model "AUTO-WASH" suitable for your business. The information regarding two different models is given below: Machine Costs CLEAN 2.5 million Machine Costs AUTO-WASH 3.5 million Annual cash flow 500,000 Annual cash flow 650,000 Remaining Life 4 years Estimate life 12 years Residual value now 500,000 Residual value after 12 700,000 years operation Residual value in 4 years 200,000 You are considering the following alternatives: a. Replace the model CLEAN with "AUTO-WASH" now b. Replace the model CLEAN with AUTO-WASH" in 4 years' time Suppose the required rate of return is 10% p.a., please advise which alternative the auto car wash business should adopt. QUESTION 21 You operate an auto car wash on Wallsend and you have used the current car washing machine CLEAN for almost 10 years. The machine is working slowly and therefore you would like to consider the replacement of the existing machine. After conducting research, you find the model "AUTO-WASH" suitable for your business. The information regarding two different models is given below: Machine Costs CLEAN 2.5 million Machine Costs AUTO-WASH 3.5 million Annual cash flow 500,000 Annual cash flow 650,000 Remaining Life 4 years Estimate life 12 years Residual value now 500,000 Residual value after 12 700,000 years operation Residual value in 4 years 200,000 You are considering the following alternatives: a. Replace the model CLEAN with "AUTO-WASH" now b. Replace the model CLEAN with AUTO-WASH" in 4 years' time Suppose the required rate of return is 10% p.a., please advise which alternative the auto car wash business should adopt.