Imustration 3.5\

ABC

and

Co

. is considering a proposal to replace one of its plants costing Rs. 60,000 (having a written down value of Rs. 24,000). The remaining economic life of the plant is 4 years after which it will have no salvage value. However, if sold today, it has a salvage value of Rs. 20,000 . The new machine costing Rs.

1,30,000

is also expected to have a life of 4 years with a scrap value of Rs. 18,000 . The new machine, due to its technological superiority, is expected to contribute additional annual benefit (before depreciation and tax) of Rs. 60,000 . Find out the cash flows associated with this decision given that the tax rate applicable to the firm is

30%

. (The capital gain or loss may be taken as

^(ot )

subject to tax.)

ABC and Co. is considering a proposal to replace one of its plants costing Rs. 60,000 (having a written down value of Rs. 24,000 ). The remaining economic life of the plant is 4 years after which it will have no salvage value. However, if sold today, it has a salvage value of Rs. 20,000. The new machine costing Rs. 1,30,000 is also' expected to have a life of 4 years with a scrap value of Rs. 18,000 . The new machine, due to its technological superiority, is expected to contribute additional annual benefit (before depreciation and tax) of Rs. 60,000. Find out the cash flows associated with this decision given that the tax rate applicable to the firm is 30%. (The capital gain or loss may be taken as ot subject to tax.)