One year ago, ABC Ltd purchased a machine for 600,000. The machine was expected to produce a
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One year ago, ABC Ltd purchased a machine for ₹600,000. The machine was expected to produce a gross margin of ₹120,000 per year and was assumed to have an economic life of six years.
The company now finds that a new machine is available that may offer significant advantages. The new machine can be purchased for ₹800,000, has an economic life of five years, and has no salvage value. It is expected that the new machine will produce a gross margin of ₹220,000 per year. The old machine can be sold now for ₹400,000. ABC Ltd’s tax rate is 30 per cent.
At 10 per cent COC, should ABC Ltd replace the old machine?
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To make an informed decision we need to compare the present values of the cash flows for both option...View the full answer
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Related Book For
Corporate Finance Theory And Practice In Emerging Economies
ISBN: 9781108486965
1st Edition
Authors: Sunil Mahajan
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