Question
There is an assignment of finance of ATG group on ur portal of which answers are incomplete, I want the full solution, can u help
There is an assignment of finance of ATG group on ur portal of which answers are incomplete, I want the full solution, can u help with that?
As part of the due diligence process it is determined that the existing production line may need to be replaced. The following data relates to this: Existing production line: Originally cost $1,500,000 and installed four years ago with a projected effective life of eight years. Could be sold today for $600,000, but would have $25,000 scrap value at the end of eight years. Since installation date, depreciation has been based on 20% Prime Cost. Would continue to require maintenance of $165,000 at the end of each year. Replacement production line Cost $1,750,000 fully installed with a projected effective life of four years. Would have an estimated value of $385,000 at the end of four years. Depreciation will be based at 20% Prime Cost. Maintenance is expected to be $50,000 at the end of each year. Savings in operating costs are expected to be $100,000 per year. Other information Tax is payable at the end of each year at 30%. Weighted Average Cost of Capital is 11%. Note: I. Calculate the NPV of continuing with the existing production line. II. Calculate the NPV of replacing the production line. In your report: Make a recommendation between keeping or replacing the production line. Provide reasons for your decision. Include the NPV of each alternative in your explanation. I. Briefly explain why you have not considered the Accounting Rate of Return and the Payback Period in your analysis. II. Include your calculations as Appendix 2.
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