s presently having a machine whose book value is Rs 7,50,000 and it is estimated to have a useful life of 5 years after which its salvage value will be nil. It's operating cost is Rs 10,00,000 per annum. The company is considering replacing old machine with a fully automatic machine. The new machine will cost Rs 28,80,000 and will require installation charges of Rs 1,20,000. It will have an estimated life of 6 years with zero salvage value. It's operating cost is likely to be Rs 4,00,000 per annum. The old machine can be sold for Rs 6,10,000. Assume tax rate of 35% and straight line method.

s presently having a machine whose book value is Rs 7,50,000 and it is estimated to have a useful life of 5 years after which its salvage value will be nil. It's operating cost is Rs 10,00,000 per annum. The company is considering replacing old machine with a fully automatic machine. The new machine will cost Rs 28,80,000 and will require installation charges of Rs 1,20,000. It will have an estimated life of 6 years with zero salvage value. It's operating cost is likely to be Rs 4,00,000 per annum. The old machine can be sold for Rs 6,10,000. Assume tax rate of 35% and straight line method.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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