Q.2: The Electrical Industries Company is considering the replacement of its old machines with new machines. The historical cost of old machines is $940000, book value of $86400 and market value $129600) The new machine price is $1296000 and it is expected to have a useful life of five years, with a disposal value of $144800) Custom fees, transporting cost and installing cost of new machines are $68800. Additional working capital is needed to keep the new machine running efficiently for $190320. The new machines will generate an annual cash flow before tax for $432000. The profits are subjected to income tax at rate %40. The company uses the straight-line method in calculating depreciation and the interest rate is %8. Required: calculate the following: 1. Initial cost of investment 2. Net cash inflow for new machines. 3. Net present value (ARR) hased on cost of investment.
Q.2: The Electrical Industries Company is considering the replacement of its old machines with new machines. The historical cost of old machines is $940000, book value of $86400 and market value $129600) The new machine price is $1296000 and it is expected to have a useful life of five years, with a disposal value of $144800) Custom fees, transporting cost and installing cost of new machines are $68800. Additional working capital is needed to keep the new machine running efficiently for $190320. The new machines will generate an annual cash flow before tax for $432000. The profits are subjected to income tax at rate %40. The company uses the straight-line method in calculating depreciation and the interest rate is %8. Required: calculate the following: 1. Initial cost of investment 2. Net cash inflow for new machines. 3. Net present value (ARR) hased on cost of investment.
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 14PROB
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