Teja International is determining the cash flows for a project involving replacementof an old machine by a new machine. The old machine bought abook value of 7800,000 and it can be sold to realise a post-tax salvage value of7900,000. It has a remaining life of five years after which its net salvage value isexpected to be 200,000. It is being depreciated annually at a rate of 25 percentunder the WDV method.fewyears ago has aThe new machine costs 3,000,000. It is expected to fetch a net salvage value of71,500,000 after five years. The depreciation rate applicable to it is 25 percent underthe WDV method. The new machine is expected to bring a saving of 7650,000annually in manufacturing costs (other than depreciation). The incremental workingcapital associated with this machine is 500,000. The tax rate applicable to the firmis 30 percent.(a) Estimate the cash flow associated with the replacement project.(b) What is the NPV of the replacement project if the cost of capital is 14 percent?

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Description: Teja International is determining the cash flows for a project involving replacementof an old machine by a new machine. The old machine bought abook value of 7800,000 and it can be sold to realise a post-tax salvage value of7900,000. It has a remain

Net Present Value=(Present Value of Cash Inflows-Present Value of Cash Outflows)

Business

Accounting

Teja International is determining the cash flows for a project involving replacement of an old machine by a new machine. The old machine bought a few years ago has a book value of T800,000 and it can be sold to realise a post-tax salvage value of ¥900,000. It has a remaining life of five years after which its net salvage value is expected to be 7200,000. It is being depreciated annually at a rate of 25 percent under the WDV method. The new machine costs 73,000,000. It is expected to fetch a net salvage value of ¥1,500,000 after five years. The depreciation rate applicable to it is 25 percent under the WDV method. The new machine is expected to bring a saving of 7650,000 annually in manufacturing costs (other than depreciation). The incremental working capital associated with this machine is 7500,000. The tax rate applicable to the firm is 30 percent. Ca) Estimate the cash flow associated with the replacement project. (b) What is the NPV of the replacement project if the cost of capital is 14 percent?

Teja International is determining the cash flows for a project involving replacement of an old machine by a new machine. The old machine bought a few years ago has a book value of T800,000 and it can be sold to realise a post-tax salvage value of ¥900,000. It has a remaining life of five years after which its net salvage value is expected to be 7200,000. It is being depreciated annually at a rate of 25 percent under the WDV method. The new machine costs 73,000,000. It is expected to fetch a net salvage value of ¥1,500,000 after five years. The depreciation rate applicable to it is 25 percent under the WDV method. The new machine is expected to bring a saving of 7650,000 annually in manufacturing costs (other than depreciation). The incremental working capital associated with this machine is 7500,000. The tax rate applicable to the firm is 30 percent. Ca) Estimate the cash flow associated with the replacement project. (b) What is the NPV of the replacement project if the cost of capital is 14 percent?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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