Question
Mahima Enterprises is considering replacing an old machine by a new machine. The old machine bought a few years ago has a book value of
Mahima Enterprises is considering replacing an old machine by a new machine. The old machine bought a few years ago has a book value of 90,000 and it can be sold for 90,000. It has a remaining life of five years after which its net salvage value is expected to be 10,000. It is being depreciated annually at the rate of 20 percent as per the WDV method. The new machine costs 400,000. It is expected to fetch a net salvage value of 25,000 after 5 years. It will be depreciated annually at the rate of 25 percent as per the WDV method. Investment in working capital will not change with the new machine. The tax rate for the firm is 35 percent. Estimate the cash flow associated with the replacement proposal if other costs remain unchanged. On Excel
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