Company ABC is considering replacing an existing machine with a tax value of R$50,000$ for

a new more efficient machine at a cost of R$250,000.$ The old machine can be sold today for

R$60,000$ or for R$10,000$ after $5$ years.

The estimated life of the new machine is $5$ years after which it will be sold for R$40,000.$

SARS taxes sale on capital assets at current rates.

Ignore any impacts of wear and tear.

The current tax rate is $40\%$

The cost of capital is $10\%$

Required:

Using the net present value analysis determine whether the company should continue with

the existing machine, replace the existing machine, or completely close down production?

$(25)$

Please substantiate your recommendation $(3)$

Name another investment appraisal method the company could use in evaluating investment

decisions? $(1)$

Show all working