0.0374 n = 10 years Q. 2. ABC Limited has a machine with an additional life of 5 years which costs 10,00,000 and has a book value of 4,00,000. A new machine costing 20,00,000 is available. Though its capacity is same as that of the old machine, it will lead to a saving in variable cost to the extent of 7,00,000 per annum. The life of the machine will be 5 years at the end of which it will have a scrap value of 2,00,000. The income tax rate is 40% and as policy the firm does not make an investment if the yield is less than 12% p.a. The old machine, if sold today, will realize +1,00,000; it will have no salvage value if sold at the end of 5 years. The company uses straight line method of depreciation. Capital gain on sale of old machine is also subject to the tax rate of 40%. Advise ABC Limited whether or not the old machine should be replaced. Ans. Calculation Table Particulars 0.0374 n = 10 years Q. 2. ABC Limited has a machine with an additional life of 5 years which costs 10,00,000 and has a book value of 4,00,000. A new machine costing 20,00,000 is available. Though its capacity is same as that of the old machine, it will lead to a saving in variable cost to the extent of 7,00,000 per annum. The life of the machine will be 5 years at the end of which it will have a scrap value of 2,00,000. The income tax rate is 40% and as policy the firm does not make an investment if the yield is less than 12% p.a. The old machine, if sold today, will realize +1,00,000; it will have no salvage value if sold at the end of 5 years. The company uses straight line method of depreciation. Capital gain on sale of old machine is also subject to the tax rate of 40%. Advise ABC Limited whether or not the old machine should be replaced. Ans. Calculation Table Particulars