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I need help with magic timber and steel case: New Machine The new machine under consideration was a Delta A 3 9 0 , which
I need help with magic timber and steel case:
New Machine
The new machine under consideration was a Delta A which offered an increase in capacity of per cent. This capacity was probably in excess of Magics needs, although the business would make some use of it Also, the new machine allowed the possibility of obtaining some custom work for a specialist woodcrafter.
The new machine cost $ and the tax office allowed straight line depreciation of per cent per annum. After five years, Magic would sell the Delta for $ Given that the company selling the machine to Magic operated in a very competitive market, it was willing to negotiate on the terms of a maintenance plan. The seller offered fixed pricing starting at $ in the first year, increasing by $ per year payable at year end To fund the purchase, Magics bank offered a per cent per annum loan to be repaid as interestonly payments for five years, with the full principal repayable at the end of the loan period.
Given the technological advancements of the Delta over the Matrix, Davidson expected that he could achieve significant savings in both labour and electricity costs. For labour, in the first year, Davidson forecasted a per cent cost reduction the existing rate was $ per hour based on a hour week in a week year. This labour saving would then increase by a fixed $ each year.
For electricity, in the first year, the saving was expected to be per cent as well. Electricity costs averaged $ per hour, hours a day, seven days a week, in a week year. This electricity saving would then increase by a fixed $ each year.
THE DECISION
While Davidson felt enthusiastic about the upcoming possibilities for Magic, he had some concerns about the new level of debt, not just regarding the size of the loan, but also with respect to what that commitment meant for the business in terms of future opportunities. Davidson believed that if new business arose as a result of the increased capacity, the debt repayments could be comfortably met but the market conditions and the competitive nature of Bunnings concerned him. However, he also realized that if he opted to do nothing, the companys declining revenue trend of the last few years would most likely continue. Should Magic go ahead with the investment in the new machinery? I am halfway stuck at calculations in excel while doing cashflows and non cashflows. could you plz assist me in how to calculate this
Using NPV analysis, should Magic Timber and Steel Magic purchase the new Delta finishing machine?
What other quantitative andor qualitative factors need to be taken into consideration?
Sensitivity analysis eg different discount rates, different selling prices, change in maintenance cost
You may assume discount rate as and tax rate as
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