Question: Company ABC is considering replacing an existing machine with a tax value of R 5 0 , 0 0 0 for a new more efficient

Company ABC is considering replacing an existing machine with a tax value of R50,000 for
a new more efficient machine at a cost of R250,000. The old machine can be sold today for
R60,000 or for R10,000 after 5 years.
The estimated life of the new machine is 5 years after which it will be sold for R40,000.
SARS taxes sale on capital assets at current rates.
Ignore any impacts of wear and tear.
The current tax rate is 40%
The cost of capital is 10%
Required:
Using the net present value analysis determine whether the company should continue with
the existing machine, replace the existing machine, or completely close down production?
(25)
Please substantiate your recommendation (3)
Name another investment appraisal method the company could use in evaluating investment
decisions? (1)
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