Q4. Al Dhahabi Mills Ltd. purchases a machinery which costs RO 20,000. The useful life of the machine is 10 years and the annual rate of depreciation is 8% per annum, depreciation being calculated on WDV method. After 10 years, the existing machine has to be replaced by a new one which will cost 250% more than the book value of the existing machine at that time. a) If company sells existing machine at scrap value, What is the extra amount the company will require at the end of 10th year to replace the existing machine by a new one? b) Do you agree with company's decision to sell the existing machine after 10 years and buy new one. Give reasons to your answer

Q4. Al Dhahabi Mills Ltd. purchases a machinery which costs RO 20,000. The useful life of the machine is 10 years and the annual rate of depreciation is 8% per annum, depreciation being calculated on WDV method. After 10 years, the existing machine has to be replaced by a new one which will cost 250% more than the book value of the existing machine at that time. a) If company sells existing machine at scrap value, What is the extra amount the company will require at the end of 10th year to replace the existing machine by a new one? b) Do you agree with company's decision to sell the existing machine after 10 years and buy new one. Give reasons to your answer

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...

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Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the purchase of the printer impacts not only depreciation expense each year but also the assets book value. What amount will be recorded as depreciation expense each year, and what will the book value be at the end of each year after depreciation is recorded?
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REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings from 24,000 to 46,000 per year. The new machine will cost 80,000, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firms WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer.