17. A company is considering replacing its existing machine by a more efficient new machine. The cost of production per unit is estimated as follows Cost production per unit (E) Old Machine New Machine Materials 010 38 Labour 060 40 Variable overheads 030 15 Fixed overheads 020 30 150 123 For the old machine, fixed overheads include allocations from other departments and the depreciation. In case of the new machine, fixed overheads also include its maintenance cost of *2 per unit. The old machine was bought 5 years ago for a cost of 300,000, and has a book value of 200,000 now after being depreciated on a straight-line basis for both book as well as tax purposes. It has a remaining life of 10 years. It has a capacity to produce 3,000 units each year, and its capacity is fully utilised. The new machine would cost 500,000 and would have a salvage value of 50,000 at the end of its life of 10 years. The supplier of the new machine has agreed to buy back the old machine at 50 per cent of its book value in exchange for the new machine. He has also agreed that the remaining amount could be paid in two instalments: half of the amount now and half, a year later.