Question

8 years
nil
Or
ABC Ltd. has a machine which has been in operation for 3 years. Its remaining
useful life is 8 years with no salvage value. Its current market value is 200,000.
The company is considering a proposal to purchase a new model of machine to
replace the existing machine. The relevant information is given below:
Existing Machine New Machine
Cost of machine
3,30,000 10,00,000
Estimated life
11 years,
Salvage value
340000
Annual output
30000 units 775000'units
Selling price per unit
15
15
Annual operating hours
3000
3000
Material cost per unit
labour cost per hour
40
*70
Indirect cash cost per annum
50000
*65000
The company follows the straight line method of depreciation. The corporate
tax rate is 30%. ABC Ltd. does not make any investment if it yields less than 12%.
Advice ABC Ltd. whether the existing machine should be replaced or not. Ignore
capital gain tax.
15​

Answer 1

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