Question
The bookstore has a copier machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6
The bookstore has a copier machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. It was originally bought for SAR 2,633 and it could be sold for SAR 500 at the end of its useful life. If sold now, the machine could be sold at a market value of SAR 2,500.
The bookstore found another copier machine that has a cost of SAR 8,000, an estimated useful life of 6 years, and an estimated salvage value of SAR 800. The new machine would permit an output expansion, so sales would rise by SAR 1,000 per year. Even so, the new machines greater efficiency would cause operating expenses to decline by SAR 1,500 per year. The new machine would require that inventories and account payables increase immediately by SAR 2,000 and SAR 500 each year, respectively. At the end of the new machines life, the bookstore will be able to recover 100% of its investment in inventories and account payables. The bookstores tax rate is 40%, and its WACC is 15%. The bookstore will depreciate the new machine using the accelerated depreciation. The depreciation rates used are as follows:
Period | year1 | year2 | year3 | year4 | year5 | year6 | |
Depreciation rate | 20% | 32% | 19% | 12% | 11% | 6% |
Should the bookstore replace the old copier machine solve in excel?
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