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PLEASE DEAR SIR/MA'AM HELP HOW DO I SOLVE THIS IN M.S EXCEL ZebraTechnologyLtd.isamanufacturingfirmspecializingintheproductionofsophisticatedproduct components.Thecompanyisconsideringthepurchaseofanewpiece ofequipment. TheequipmentwouldcostCAD 141,000andhaveasalvagevalueofCAD 18,000attheendofitssix-yearlife.ThenewequipmentwouldreplaceexistingdevicesthatarefullydepreciatedbuthaveacurrentmarketvalueofCAD 10,000.Iftheoldequipmentiskeptforanother sixyears,it would have asalvage value ofzero.

PLEASE DEAR SIR/MA'AM HELP HOW DO I SOLVE THIS IN M.S EXCEL

ZebraTechnologyLtd.isamanufacturingfirmspecializingintheproductionofsophisticatedproduct components.Thecompanyisconsideringthepurchaseofanewpiece ofequipment.

TheequipmentwouldcostCAD 141,000andhaveasalvagevalueofCAD 18,000attheendofitssix-yearlife.ThenewequipmentwouldreplaceexistingdevicesthatarefullydepreciatedbuthaveacurrentmarketvalueofCAD 10,000.Iftheoldequipmentiskeptforanother sixyears,it would have asalvage value ofzero.

ZebraTechnologyiscurrentlyselling50,000unitsayear.Thenewequipmentshouldallowittosell 15,000additionalunitsper yearoverthe next sixyears.

EachunitsellsforCAD 12.00andthisisnotexpectedtochangeoverthenextsixyears.VariablecostsofproductionareCAD 7.50perunit,butthisshouldfalltoCAD 5.75perunitwith the more efficient machine.FixedcostsareexpectedtofallbyCAD 10,000peryear. Thenewequipment will alsoreducetherequiredinvestment inNWCbyCAD 30,000.

ZebraTechnologyhasanRRR of11.5% after tax.Thesetwopiecesofequipmentareboth in a CCA poolwitha rate of20%.The marginal taxrate is31%. Theinflationrateisnegligible.

REQUIRED:

  1. Should Zebra Technology buy this new equipment?

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