Question: Please answer as soon as possible Schwabe Industries is planning a project involving replacement of an old machine with a new machine. The old machine

Please answer as soon as possible

Schwabe Industries 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. 100 lakhs and it can be sold to realise a post-tax salvage value of Rs. 50 lakhs. It has a remaining life of 5 years after which its net salvage value is expected to be Rs. 20 lakhs. It is being depreciated annually at a rate of 20 percent under WDV method. The new machine costs Rs. 200 lakhs. It is expected to fetch a net salvage value of Rs. 80 lakhs after 5 years. The depreciation rate applicable to it is 20 percent under WDV method. The incremental working capital associated with this machine is Rs. 70 lakhs and it is expected to be recovered at its book value at the end of 5 years. The new machine is expected to bring a savings of Rs. 48 lakhs annually in manufacturing costs (other than depreciation). The tax rate applicable to the firm is 40 percent. Estimate the cash flow associated with the replacement project.

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