Totem group is planning to purchase a new printing machine to replace a current machine. The cost of the new machine Konica Minolta 512i , including delivery and installation, is IDR 140,000,000. If it is purchased, Totem will incur costs of IDR 10,000,000 to remove the current printing machine and revamp its facilities and it is tax deductible at time 0. Depreciation for tax purposes will be as follows: year 1, IDR 28,000,000; year 2, IDR 49,000,000; and in each of years 3 through 5, IDR 21,000,000 per year. The existing printing machine has a book value of IDR 70,000 and a remaining useful life of 5 years. However, the existing equipment can be sold for only IDR 25,000,000 and is being depreciated using the straight-line method over its actual life. Marketing team has provided comparative printing cost data as follow: Current Machine New Machine Machine Available per year (hour) 3,328 3,328 Annual Cost Labor 21,000,000 17,500,000 Depreciation 7,000,000 9,800,000 Other (all cash) 33,600,000 14,000,000 Total Annual cost 61,600,000 41,300,000 The existing printing machine is expected to have a salvage value IDR 24,000,000 at the end of 10 years. with removal cost included. No changes in working capital are required with the purchase of the new machine. Assume there is no change in revenue for the next 10 years. Totem's cost of capital is 8 percent, and its tax rate is 25 percent.
Totem group is planning to purchase a new printing machine to replace a current machine. The cost of the new machine Konica Minolta 512i , including delivery and installation, is IDR 140,000,000. If it is purchased, Totem will incur costs of IDR 10,000,000 to remove the current printing machine and revamp its facilities and it is tax deductible at time 0. Depreciation for tax purposes will be as follows: year 1, IDR 28,000,000; year 2, IDR 49,000,000; and in each of years 3 through 5, IDR 21,000,000 per year. The existing printing machine has a book value of IDR 70,000 and a remaining useful life of 5 years. However, the existing equipment can be sold for only IDR 25,000,000 and is being
Marketing team has provided comparative printing cost data as follow:
Current Machine New Machine
Machine Available per year (hour) 3,328 3,328
Annual Cost
Labor 21,000,000 17,500,000
Depreciation 7,000,000 9,800,000
Other (all cash) 33,600,000 14,000,000
Total Annual cost 61,600,000 41,300,000
The existing printing machine is expected to have a salvage value IDR 24,000,000 at the end of 10 years. with removal cost included. No changes in
Task :
Give recommendation to Management, is this project valuable or not!
Clues :
- Calculate all cost and depreciation
- Consider tax benefit
- Calculate
Cash Flow of implementation of the new printing machine
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