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Precision Engineers Ltd. Is considering a proposal to replace one of its machines.

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Q1.) Precision Engineers Ltd. Is considering a proposal to replace one of its machines. The… 1 answer below » Q1.) Precision Engineers Ltd. Is considering a proposal to replace one of its machines. The following data is available regarding the same: a. The machine was purchased 4 years ago for Rs.15 lacs and has been depreciated at 25% p.a. as per the WDV method. The machine has a remaining life of 5 years, after which its salvage value is expected to be Rs.0.80 lacs. Its present salvage value is Rs.6.0 lacs. b. The new machine costs Rs.22lacs, and would be depreciated at 40% p.a. as per WDV method. Its expected life is 8 years and after 5 years it is expected to fetch Rs.6 lacs. The installation of View complete question » Q1.) Precision Engineers Ltd. Is considering a proposal to replace one of its machines. The following data is available regarding the same: a. The machine was purchased 4 years ago for Rs.15 lacs and has been depreciated at 25% p.a. as per the WDV method. The machine has a remaining life of 5 years, after which its salvage value is expected to be Rs.0.80 lacs. Its present salvage value is Rs.6.0 lacs. b. The new machine costs Rs.22lacs, and would be depreciated at 40% p.a. as per WDV method. Its expected life is 8 years and after 5 years it is expected to fetch Rs.6 lacs. The installation of this machine will increase the annual revenue by Rs.5 lacs, apart from decreasing the operational costs by Rs.1.10 lacs per annum. Assume no change in the depreciation rate if old machine is continued to be used. If the company uses a discounting factor of 17% p.a. for calculating the present value of future cash flow, should it go for the replacement of existing machine with the new machine? Marginal tax rate of the company is 20%. Show all your workings View less » Sep 22 2015 09:30 AM


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