Question

Sharan Ltd. has an existing machine having a remaining life of 6 years and has a book value of Rs. 3,00,000. A new machine costing Rs. 20,00,000 is available. Though its capacity is same as that of old machine, it will mean savings in variable costs to the extent of Rs. 6,00,000 per annum. The life of the machine will be 6 years at the end of which it will have scrap value of Rs. 5,00,000. The company follows straight line method of depreciation. The tax rate is 30% and company’s required rate of return is 10% per annum. The old machine, if sold today, will realize Rs. 1,00,000; it will have no salvage value if sold at the end of 6th year. You are required to find out: (a) Initial cash outflows (b) Annual operating cash flows (c) Terminal cash flows (d) NPV And advise whether machine should be replaced or not

Answer 1

Answer:

the machine costs 5000 rupees

Explanation:

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