Question: 2 points Gemini Enterprises is planning a project involving replacement of an old machine with a new machine. The old machine bought a few years

2 points

Gemini Enterprises is planning a project involving replacement of an old machine with a new machine. The old machine bought a few years ago has a book value of Rs. 80 lakhs and it can be sold to realise a post-tax salvage value of Rs. 42 lakhs. It has a remaining life of 4 years after which its net salvage value is expected to be Rs. 15 lakhs. It is being depreciated annually at a rate of 25 percent under WDV method.

The new machine costs Rs. 120 lakhs. It is expected to fetch a net salvage value of Rs. 50 lakhs after 4 years. The depreciation rate applicable to it is 25 percent under WDV method. The incremental working capital associated with this machine is Rs. 25 lakhs and it is expected to be recovered at its book value at the end of 4 years. The new machine is expected to bring post tax savings of Rs. 24 lakhs annually in manufacturing costs (other than depreciation). The tax rate applicable to the firm is 30 percent.

Calculate the initial investment to be made by the company

The total operating cash flows for the year 1 are

The total operating cash flows for the year 2 are

The total operating cash flows for the year 3 are

The total operating cash flows for the year 4 are

The terminal cash flows for the year 4 are

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