Q.6 Skydeck wants to verify whether it will be a feasible investment idea to replace an existing metal body repair machine which they use it for motor vehicles. This machine can be fully depreciated machine. Currently they are considering to replace this old machine with a new one. The new machine will have an installation cost of $300,000 (after-tax) and can be depreciated under a three-year diminishing value schedule. A vendor is interested to buy the old machine for $80,000 (after taxes). The company pays 30% tax and requires a minimum return of 15% if it replaces the old machine. The company's forecasts for it's expenses (excluding depreciation) and revenues over the next four years are given below (all figures are in S thousands): New machine Old machine Year Revenue Expenses (excluding depreciation) Revenue Expenses (excluding depreciation) 1 $925 $740 $625 $580 2 990 780 645 595 3 1,000 825 670 610 4 1,100 875 695 630 Skydeck also considers that the values of various current accounts could be impacted by the proposed replacement. These estimates over the next four years time are shown below for both machines. Currently (which means at time 0), the company's net investment in these current accounts is expected to be $110,000 with the new machine and $75,000 with the old machine. New machine year 3 Cash $20,000 $25,000 5 30,000 $ 36,000 Accounts receivable 90,000 95,000 110,000 120,000 Inventory 80,000 90,000 100,000 105,000 Accounts payable 60,000 65,000 70,000 72,000 Old machine year 3 Cash $15,000 $15,000 $15,000 $15,000 Accounts receivable 60,000 64,000 68,000 70,000 Inventory 45,000 48,000 52,000 55,000 Accounts payable 33,000 35,000 38,000 40,000