11. Alpha Limited is considering replacing its old machine by a new machine. The new machine will cost *360 million. The supplier of the new machine has agreed to accept the old machine at a value of 40 million in exchange for the new machine. Old machine has been fully depreciated for tax purposes, but it has a book value of 20 million in the accounting statements meant for external reporting. If the old machine is sold in the market, it cannot fetch more than 30 million. After 10 years, it can be sold for 6 million. The new machine has an expected life of 10 years. and a salvage value of 40 million after 10 years. Alpha uses the old machine for producing a special component used in its main product The production from old or new machine would be 15 million units each year. The following are the projected revenues and costs from the old and new machines: Old Machine New Machine million) million) Salou 1,080 1,080 Material cost 240 195 Direct labour 180 120 Indirect labour 90 100 Variable overheads 75 50 Allocated fixed 120 130 overheads Depreciation 2 36 707 631 Profit before tax 373 449 Tax 186.50 224.50 Profit after tax 186.50 224.50 Depreciation is calculated on a straight-line basis. For tax purposes, written down depreciation at 15 per cent per annum is allowed. If Alpha's. required rate of return is 12 per cent, should the old machine be replaced? What would be your decision if the component could be bought from outside at a cost of 40 per unit? Assume that as per the current laws in India, depreciation is based on the block of assets and the depreciable base of the block is adjusted on the ocquistion or sale of assets. Old Machine New Machine million) million) Saloa 1,080 1,080 Material cost 240 195 Direct labour 180 120 Indirect labour 90 100 Variable overheads 75 50 Allocated fixed 120 130 overheads Depreciation 2 36 707 631 Profit before tax 373 449 Tax 186.50 224.50 Profit after tax 186.50 224.50 Depreciation is calculated on a straight-line basis. For tax purposes, written down depreciation at 15 per cent per annum is allowed. If Alpha's required rate of return is 12 per cent, should the old machine be replaced? What would be your decision if the component could be bought from outside at a cost of 40 per unit? Assume that as per the current laws in India, depreciation is based on the block of assets and the depreciable base of the block is adjusted on the ocquistion or sale of assets.