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& Co. Ltd is considering the purchase of a new machine. Two options have becn each costing s 400,000. Eamings after taxation but before depreciation
& Co. Ltd is considering the purchase of a new machine. Two options have becn each costing s 400,000. Eamings after taxation but before depreciation are 5. The Vivek expected to be as follows: Machine X Machine Y 40,000 120,000 160,000 240,000 160,000 120,000 160,000 200,000 120,000 80,000 The Company has a target rate of return on capital at 10% and Depreciation rate is 2056 (straight line method). On this base, you are required. (15 marks) a) To compare profitability of the machines and state which option you consider financially favourable b) Also work the Pay-back Period and c) ARR for each project 6. Luxe Foods is contemplating acuisition of Valley Canning Company for a cash price f 180,000. Luxe currently has high financial leverage and therefore has a cost of capital of 14 percent. As a result of acquiring Valley Canning, which is financed entirely with equity, the firm expects its financial leverage to be reduced and its cost of capital therefore to drop to 11 percent. The acquisition of Valley Canning is expected to increase Luxe's cash inflows by $20,000 per year for the first 3 years and by $30,000 per year for the following 12 years. a. Determirde whether the proposed cash acqui isition is desirable. Explain your answer! (5 marks) f the firm's financial leverage acquisition, would this alter your recommendation in a? Support your answer with numerical data
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