Question
A company is debating whether to replace its existing machine with a new model that costs Rs.80,000 and has a ten-years life. (If desired, it
A company is debating whether to replace its existing machine with a new model that costs Rs.80,000 and has a ten-years life. (If desired, it can be sold for Rs.40,000 after six years) The new machine will increase revenue from Rs.45,000 to Rs.60,000, while the variable-cost would remain at one-third of the revenue. Fixed cost will go up by Rs.5,000. The existing machine was bought 15 years back for Rs.105,000 and lasts for 21 years. Its current market-value is Rs.20,000. The corporations tax-rate is 40%, and its cost-of-capital is 10%. Should it replace the machine?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started