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2.2 Jumbo Precast is considering purchasing a machine that will automate the production of its precast concrete products. The cost of the machine is
2.2 Jumbo Precast is considering purchasing a machine that will automate the production of its precast concrete products. The cost of the machine is R750 000. This machine could save the company R150 000 per year over the project life of 6 years. The purchase of the new machine will be financed by R300 000 from own company funds and the balance by obtaining a loan of R450 000. The interest payable on the loan is 16% and the loan is paid back over a period of 5 years. According to the SARS, the tax life for this category of equipment is 5 years and the residual value (t=5years) is R750 000. The machine will sell for R150 000 at the end of the 5th year. The company pays 38% tax. Apply straight-line depreciation. The before-tax MARR is 10%. Make a recommendation as to whether the company should purchase the machine. Provide justification for your answer. (33)
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