Question: A firm is currently using a machine that was purchased two years ago for Rs . 7 0 , 0 0 0 and has a

A firm is currently using a machine that was purchased two years ago for Rs.70,000 and has a remaining useful life of 5 years. It is considered to replace the machine with a new one which will cost Rs.1,40,000. The cost of installation will amount to Rs.10,000. The increase in working capital will be Rs.20,000. The expected cash lows before depreciation and taxes for both machines are as follows: Year Existing Machine New Machine 1 Rs.30,000 Rs.50,0002 Rs.30,000 Rs.60,0003 Rs.30,000 Rs.70,0004 Rs.30,000 Rs.90,0005 Rs.30,000 Rs.1,00,000 The firm uses the Straight-Line Method of depreciation. The average tax on income, as well as on capital gains/losses, is 40%. Calculate the incremental cash flows assuming the sale value of the existing machine: (i) Rs.80,000,(ii) Rs.60,000,(iii) Rs.50.000, and (iv) Rs.30,000.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!