A$2$Z Ltd$.$ is considering the replacement of one of its machine. The firm wants to expand its operations and hence requires bigger machine. The existing machine is in good operating condition, but is smaller. It is $3$ years old, has a current salvage value of Rs$.4,00,000$ and a remaining life of $5$ years. The machine was initially purchased for Rs$.20$ lacs and is being depreciated at $20\%$ on the WDV basis. It's salvage value at the end of its useful life is estimated to be negligible.

The new machine will cost Rs$.40$ lacs and will be subject to the same method as well as the same rate of depreciation. It is expected to have the useful life of $5$ years. The management anticipates that with the expanded operations there will be a need of an additional net working capital of Rs$.1,00,000$ at the beginning. The new machine will allow the firm to expand the current operations and thereby increase its cash annual revenue by Rs$.25,00,000.$ Variable cost will be $50$ percent of sale. Annual fixed cash costs are likely to increase by Rs$.1,00,000$ in the first three years of its operation and Rs$.1,50,000$ thereafter. It is estimated that new machine can be sold for Rs$.6,00,000$ at end of its useful life. The corporate tax rate is $30\%.$ Firm's cost of capital is $10\%.$ The company has several machines in the block of $20\%$ depreciation. Using NPV technique, comment whether the company should replace the existing machine. $($Round off your calculations to nearest rupee$).$

PVIF at $10\%$ cost of capital are given below for your ready reference:

Year

$1$

PVIF at $10\%$

$0\mathrm{.}909$

$2$

$3$

$4$

$5$

$0\mathrm{.}683$

$0\mathrm{.}621$

$(15$ marks$)$ P$.$T$.$O