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Should Junior Company buy the Question 3 Dale Davis Company is evaluating a proposal to purchase a new machine that would cost R100.000 and have
Should Junior Company buy the Question 3 Dale Davis Company is evaluating a proposal to purchase a new machine that would cost R100.000 and have a salvage value of R10,000 in 4 years It would provide annual operating cash savings of R10,000, as follows Salanes Old Machine New Machine R40,000 R36,000 7,000 5,000 5,000 Supplies Maintenance 9,000 R46,000 R56,000 Total If the new machine is purchased, the old machine will be sold for its current salvage value of R20,000 If the new machine is not purchased, the old machine will be disposed of in 4 years at a predicted salvage value of R2,000 The old machine's present book value is R40,000 if kept, in 1 year the old machine will require repairs predicted to cost R35,000 Dale Davis's cost of capital is 14% Required: Should the new machine be purchased? Why or why not? (15
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