Question
A Machine purchased six years ago for Rs 150,000 has been depreciated to a book value of Rs 90,000. It originally has projected life of
A Machine purchased six years ago for Rs 150,000 has been depreciated to a book value of Rs 90,000. It originally has projected life of 15 years and zero salvage value. A new machine will cost Rs 350,000 and result in reduction of operating cost of Rs 40,000 in first year which will increase @8% for next eight years. The older machine could be sold for Rs 135,000. The cost of capital is 10%. The new machine will be depreciated on a straight line basis over nine year life with Rs 35,000 salvage value. The company normal tax rate is 40% whereas capital gain tax rate is 10%. Should we replace the old machine?
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